CINEDIGM DIGITAL CINEMA CORP. INDEX TO FINANCIAL STATEMENTS
| | | Report of Independent Registered Public Accounting Firm | | Consolidated Balance Sheets at March 31, 20122013 and 20112012 | | Consolidated Statements of Operations for the fiscal years ended March 31, 20122013 and 20112012 | | Consolidated Statements of Comprehensive Loss for the fiscal years ended March 31, 2013 and 2012 | | Consolidated Statements of Stockholders' Deficit for the fiscal years ended March 31, 2013 and 2012 | | Consolidated Statements of Cash Flows for the fiscal years ended March 31, 20122013 and 20112012 | | Consolidated Statements of Stockholders’ (Deficit) Equity and Comprehensive Loss for the fiscal years ended March 31, 2012 and 2011 | | Notes to Consolidated Financial Statements | |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To theThe Board of Directors and Stockholders
Cinedigm Digital Cinema Corp.
We have audited the accompanying consolidated balance sheets of Cinedigm Digital Cinema Corp. (the "Company"“Company”) as of March 31, 20122013 and 2011,2012, and the related consolidated statements of operations, stockholders' (deficit) equity and comprehensive loss, stockholders' deficit and cash flows for each of the years then ended. Thesein the two-year period ended March 31, 2013. The financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits includeincluded consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Anaudit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of March 31, 20122013 and 2011,2012 and the consolidated results of their operations and their cash flows for each of the years thenin the two-year period ended March 31, 2013, in conformity with accepted accounting principles generally accepted in the United States of America.
/s/ EisnerAmper LLP
Edison, New Jersey June 15, 201219, 2013
CINEDIGM DIGITAL CINEMA CORP. CONSOLIDATED BALANCE SHEETS (In thousands, except for share and per share data)
| | | March 31, | March 31, | | 2012 | | 2011 | 2013 | | 2012 | ASSETS | | | | | | | Current assets | | | | | | | Cash and cash equivalents | $ | 17,843 |
| | $ | 10,748 |
| $ | 13,448 |
| | $ | 17,843 |
| Restricted available-for-sale investments | 9,477 |
| | 6,480 |
| — |
| | 9,477 |
| Accounts receivable, net | 24,502 |
| | 13,103 |
| 31,695 |
| | 24,502 |
| Deferred costs, current portion | 2,228 |
| | 2,043 |
| 1,238 |
| | 2,228 |
| Unbilled revenue, current portion | 7,510 |
| | 6,562 |
| 9,989 |
| | 7,510 |
| Prepaid and other current assets | 1,121 |
| | 962 |
| 6,101 |
| | 1,121 |
| Note receivable, current portion | 498 |
| | 438 |
| 331 |
| | 498 |
| Assets held for sale | 214 |
| | 25,170 |
| — |
| | 214 |
| Total current assets | 63,393 |
| | 65,506 |
| 62,802 |
| | 63,393 |
| Restricted cash | 5,751 |
| | 5,751 |
| 6,751 |
| | 5,751 |
| Security deposits | 207 |
| | 178 |
| 218 |
| | 207 |
| Property and equipment, net | 200,974 |
| | 216,562 |
| 170,511 |
| | 200,974 |
| Intangible assets, net | 466 |
| | 697 |
| 12,848 |
| | 466 |
| Capitalized software costs, net | 5,156 |
| | 3,362 |
| 7,083 |
| | 5,156 |
| Goodwill | 5,765 |
| | 5,765 |
| 12,739 |
| | 5,765 |
| Deferred costs, net of current portion | 5,080 |
| | 7,537 |
| 7,396 |
| | 5,080 |
| Unbilled revenue, net of current portion | 617 |
| | 834 |
| 543 |
| | 617 |
| Accounts receivable, long-term | 773 |
| | — |
| 1,225 |
| | 773 |
| Note receivable, net of current portion | 465 |
| | 1,296 |
| 130 |
| | 465 |
| Investment in non-consolidated entity, net | 1,490 |
| | — |
| 1,812 |
| | 1,490 |
| Total assets | $ | 290,137 |
| | $ | 307,488 |
| $ | 284,058 |
| | $ | 290,137 |
|
See accompanying notes to Consolidated Financial Statements
CINEDIGM DIGITAL CINEMA CORP. CONSOLIDATED BALANCE SHEETS (In thousands, except for share and per share data) (continued)
| | | | | | | | | | | | March 31, | | | 2012 | | 2011 | LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY | | | | | Current liabilities | | | | | Accounts payable and accrued expenses | | $ | 20,854 |
| | $ | 7,625 |
| Current portion of notes payable, non-recourse | | 35,644 |
| | 28,483 |
| Current portion of capital leases | | 186 |
| | 13 |
| Current portion of deferred revenue | | 3,677 |
| | 3,060 |
| Current portion of customer security deposits | | — |
| | 48 |
| Liabilities as part of assets held for sale | | 75 |
| | 12,564 |
| Total current liabilities | | 60,436 |
| | 51,793 |
| Notes payable, non-recourse, net of current portion | | 135,345 |
| | 164,071 |
| Notes payable | | 87,354 |
| | 78,169 |
| Capital leases, net of current portion | | 5,244 |
| | — |
| Interest rate swaps | | 1,771 |
| | 1,971 |
| Deferred revenue, net of current portion | | 11,451 |
| | 9,688 |
| Customer security deposits, net of current portion | | 9 |
| | 9 |
| Total liabilities | | 301,610 |
| | 305,701 |
| Commitments and contingencies (see Note 8) | |
|
| |
|
| Stockholders’ (Deficit) Equity | | | | | Preferred stock, 15,000,000 shares authorized; Series A 10% - $0.001 par value per share; 20 shares authorized; 7 shares issued and outstanding at March 31, 2012 and March 31, 2011, respectively. Liquidation preference of $3,698 | | 3,357 |
| | 3,250 |
| Class A common stock, $0.001 par value per share; 75,000,000 shares authorized; 37,671,487 and 32,320,287 shares issued and 37,725,126 and 32,268,847 shares outstanding at March 31, 2012 and March 31, 2011, respectively | | 38 |
| | 32 |
| Class B common stock, $0.001 par value per share; 15,000,000 shares authorized; 25,000 shares issued and outstanding, at March 31, 2012 and March 31, 2011, respectively | | — |
| | — |
| Additional paid-in capital | | 206,348 |
| | 196,420 |
| Treasury stock, at cost; 51,440 Class A shares | | (172 | ) | | (172 | ) | Accumulated deficit | | (221,044 | ) | | (197,648 | ) | Accumulated other comprehensive loss | | — |
| | (95 | ) | Total stockholders’ (deficit) equity | | (11,473 | ) | | 1,787 |
| Total liabilities and stockholders’ (deficit) equity | | $ | 290,137 |
| | $ | 307,488 |
|
| | | | | | | | | | | | March 31, | | | 2013 | | 2012 | LIABILITIES AND STOCKHOLDERS’ DEFICIT | | | | | Current liabilities | | | | | Accounts payable and accrued expenses | | $ | 40,320 |
| | $ | 20,854 |
| Current portion of notes payable, non-recourse | | 34,447 |
| | 35,644 |
| Current portion of capital leases | | 132 |
| | 186 |
| Current portion of deferred revenue | | 3,900 |
| | 3,677 |
| Current portion of contingent consideration for business combination | | 1,500 |
| | — |
| Liabilities as part of assets held for sale | | — |
| | 75 |
| Total current liabilities | | 80,299 |
| | 60,436 |
| Notes payable, non-recourse, net of current portion | | 203,462 |
| | 135,345 |
| Notes payable | | — |
| | 87,354 |
| Capital leases, net of current portion | | 4,386 |
| | 5,244 |
| Interest rate derivatives | | 544 |
| | 1,771 |
| Deferred revenue, net of current portion | | 10,931 |
| | 11,451 |
| Contingent consideration, net of current portion | | 1,750 |
| | — |
| Customer security deposits, net of current portion | | — |
| | 9 |
| Total liabilities | | 301,372 |
| | 301,610 |
| Commitments and contingencies (see Note 9) | |
|
| |
| Stockholders’ Deficit | | | | | Preferred stock, 15,000,000 shares authorized; Series A 10% - $0.001 par value per share; 20 shares authorized; 7 shares issued and outstanding at March 31, 2013 and 2012, respectively. Liquidation preference of $3,590 | | 3,466 |
| | 3,357 |
| Class A common stock, $0.001 par value per share; 118,759,000 and 75,000,000 shares authorized; 48,448,137 and 37,722,927 shares issued and 48,396,697 and 37,671,487 shares outstanding at March 31, 2013 and 2012, respectively | | 48 |
| | 38 |
| Class B common stock, $0.001 par value per share; 1,241,000 and 15,000,000 shares authorized; 1,241,000 and 1,241,000 shares issued and 0 and 25,000 shares outstanding, at March 31, 2013 and 2012, respectively | | — |
| | — |
| Additional paid-in capital | | 221,810 |
| | 206,348 |
| Treasury stock, at cost; 51,440 Class A shares | | (172 | ) | | (172 | ) | Accumulated deficit | | (242,466 | ) | | (221,044 | ) | Total stockholders’ deficit | | (17,314 | ) | | (11,473 | ) | Total liabilities and stockholders’ deficit | | $ | 284,058 |
| | $ | 290,137 |
|
See accompanying notes to Consolidated Financial Statements
CINEDIGM DIGITAL CINEMA CORP. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except for share and per share data)
| | | For the Fiscal Years Ended March 31, | For the Fiscal Year Ended March 31, | | 2012 | | 2011 | 2013 | | 2012 | Revenues | $ | 76,557 |
| | $ | 58,439 |
| $ | 88,080 |
| | $ | 76,557 |
| Costs and expenses: | | | | | | | Direct operating (exclusive of depreciation and amortization shown below) | 7,042 |
| | 4,329 |
| 12,489 |
| | 7,042 |
| Selling, general and administrative | 15,717 |
| | 11,777 |
| 23,123 |
| | 15,717 |
| Provision for doubtful accounts | 459 |
| | 144 |
| 490 |
| | 459 |
| Research and development | 175 |
| | 256 |
| 144 |
| | 175 |
| Restructuring and transition expenses | 1,207 |
| | 1,403 |
| | Merger and acquisition expenses | 604 |
| | — |
| 1,267 |
| | 604 |
| Restructuring expenses | | 340 |
| | 1,207 |
| Depreciation and amortization of property and equipment | 35,865 |
| | 31,916 |
| 36,498 |
| | 35,865 |
| Amortization of intangible assets | 294 |
| | 333 |
| 1,565 |
| | 294 |
| Total operating expenses | 61,363 |
| | 50,158 |
| 75,916 |
| | 61,363 |
| Income from operations | 15,194 |
| | 8,281 |
| 12,164 |
| | 15,194 |
| Interest income | 140 |
| | 154 |
| 48 |
| | 140 |
| Debt prepayment fees | | (3,725 | ) | | — |
| Loss on extinguishment of notes payable | | (7,905 | ) | | — |
| Interest expense | (29,899 | ) | | (26,991 | ) | (28,314 | ) | | (29,899 | ) | Loss on extinguishment of debt | — |
| | (4,448 | ) | | Loss on investment in non-consolidated entity | (510 | ) | | — |
| | Other income (expense), net | 912 |
| | (433 | ) | | Change in fair value of warrant liability | — |
| | 3,142 |
| | Change in fair value of interest rate swap | 200 |
| | (1,326 | ) | | Net loss from continuing operations | (13,963 | ) | | (21,621 | ) | | Income (loss) on investment in non-consolidated entity | | 322 |
| | (510 | ) | Other income, net | | 653 |
| | 912 |
| Change in fair value of interest rate derivatives | | 1,231 |
| | 200 |
| Loss from continuing operations before benefit from income taxes | | (25,526 | ) | | (13,963 | ) | Benefit from income taxes | | 4,944 |
| | — |
| Loss from continuing operations | | (20,582 | ) | | (13,963 | ) | Loss from discontinued operations | (5,381 | ) | | (8,237 | ) | (484 | ) | | (5,381 | ) | (Loss) gain on sale of discontinued operations | (3,696 | ) | | 622 |
| | Loss on sale of discontinued operations | | — |
| | (3,696 | ) | Net loss | (23,040 | ) | | (29,236 | ) | (21,066 | ) | | (23,040 | ) | Preferred stock dividends | (356 | ) | | (394 | ) | (356 | ) | | (356 | ) | Net loss attributable to common stockholders | $ | (23,396 | ) | | $ | (29,630 | ) | $ | (21,422 | ) | | $ | (23,396 | ) | Net loss per Class A and Class B common share - basic and diluted: | | | | | Net loss per Class A and Class B common share attributable to common shareholders - basic and diluted: | | | | | Loss from continuing operations | $ | (0.39 | ) | | $ | (0.71 | ) | $ | (0.44 | ) | | $ | (0.39 | ) | Loss from discontinued operations | $ | (0.26 | ) | | $ | (0.25 | ) | (0.01 | ) | | (0.26 | ) | | $ | (0.65 | ) | | $ | (0.96 | ) | $ | (0.45 | ) | | $ | (0.65 | ) | Weighted average number of Class A and Class B common shares outstanding: Basic and diluted | 36,259,036 |
| | 30,794,102 |
| | Weighted average number of Class A and Class B common shares outstanding: basic and diluted | | 47,517,167 |
| | 36,259,036 |
|
See accompanying notes to Consolidated Financial Statements
CINEDIGM DIGITAL CINEMA CORP. CONSOLIDATED STATEMENTS OF CASH FLOWSCOMPREHENSIVE LOSS (In thousands)
| | | | | | | | | | For the Fiscal Years Ended March 31, | | 2012 | | 2011 | Cash flows from operating activities | | | | Net loss | $ | (23,040 | ) | | $ | (29,236 | ) | Adjustments to reconcile net loss to net cash provided by operating activities: | | | | Loss (gain) on disposal of businesses | 3,696 |
| | (622 | ) | Depreciation and amortization of property and equipment and amortization of intangible assets | 39,028 |
| | 37,327 |
| Amortization of capitalized software costs | 759 |
| | 636 |
| Impairment of assets | 1,192 |
| | — |
| Amortization of debt issuance costs included in interest expense | 2,127 |
| | 2,040 |
| Provision for doubtful accounts | 771 |
| | 581 |
| Stock-based compensation and expenses | 3,418 |
| | 2,265 |
| Change in fair value of interest rate swaps | (200 | ) | | 1,326 |
| Change in fair value of warrant liability | — |
| | (3,142 | ) | Realized loss on restricted available-for-sale investments | — |
| | 87 |
| PIK interest expense added to note payable | 7,038 |
| | 6,502 |
| Loss on extinguishment of note payable | — |
| | 4,448 |
| Loss on investment in non-consolidated entity | 510 |
| | — |
| Accretion of note payable | 2,434 |
| | 2,410 |
| Changes in operating assets and liabilities: | | | | Accounts receivable | (10,410 | ) | | (6,862 | ) | Unbilled revenue | (925 | ) | | 19 |
| Prepaid expenses and other current assets | (154 | ) | | (2,474 | ) | Other assets | 663 |
| | 4,000 |
| Accounts payable and accrued expenses | 11,521 |
| | 1,937 |
| Deferred revenue | 1,830 |
| | 8,784 |
| Other liabilities | (320 | ) | | 49 |
| Net cash provided by operating activities | 39,938 |
| | 30,075 |
| Cash flows from investing activities: | | | | Net proceeds from disposal of businesses | 6,271 |
| | — |
| Purchases of property and equipment | (16,395 | ) | | (43,306 | ) | Purchases of intangible assets | (47 | ) | | (45 | ) | Additions to capitalized software costs | (2,147 | ) | | (572 | ) | Sales/maturities of restricted available-for-sale investments | 2,403 |
| | 6,115 |
| Purchase of restricted available-for-sale investments | (5,400 | ) | | (4,676 | ) | Investment in non-consolidated entity | (2,000 | ) | | — |
| Restricted cash | — |
| | 1,417 |
| Net cash used in investing activities | (17,315 | ) |
| (41,067 | ) | Cash flows from financing activities: | | | | Repayment of notes payable | (7,641 | ) | | (35,646 | ) | Proceeds from notes payable | 15,794 |
| | 170,775 |
| Repayment of term loans | (30,151 | ) | | (155,042 | ) | Proceeds from credit facilities | — |
| | 37,601 |
| Payments of debt issuance costs | — |
| | (5,987 | ) | Principal payments on capital leases | (152 | ) | | (130 | ) | Net proceeds from issuance of Class A common stock | 7,071 |
| | 1,141 |
| Costs associated with issuance of Class A common stock | (449 | ) | | (66 | ) | Net cash (used in) provided by financing activities | (15,528 | ) |
| 12,646 |
| Net change in cash and cash equivalents | 7,095 |
| | 1,654 |
| Cash and cash equivalents at beginning of year | 10,748 |
| | 9,094 |
| Cash and cash equivalents at end of year | $ | 17,843 |
| | $ | 10,748 |
|
| | | | | | | | | | | | For the Fiscal Year Ended March 31, | | | 2013 | | 2012 | Net loss | | $ | (21,066 | ) | | $ | (23,040 | ) | Other comprehensive income: Unrealized gains on available-for-sale investment securities | | — |
| | 95 |
| Comprehensive loss | | $ | (21,066 | ) | | $ | (22,945 | ) |
See accompanying notes to Consolidated Financial Statements
CINEDIGM DIGITAL CINEMA CORP. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ (DEFICIT) EQUITY AND COMPREHENSIVE LOSSDEFICIT (In thousands, except share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Series A Preferred Stock | | Class A Common Stock | | Class B Common Stock | | Treasury Stock | | Additional Paid-In | | Accumulated | | Accumulated Other Comprehensive | | Total Stockholders’ | | Total Comprehensive | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | Capital | | Deficit | | Loss | | (Deficit) Equity | | Loss | Balances as of March 31, 2010 | 8 |
| | $ | 3,583 |
| | 28,104,235 |
| | $ | 28 |
| | 733,811 |
| | $ | 1 |
| | (51,440 | ) | | $ | (172 | ) | | $ | 175,937 |
| | $ | (168,018 | ) | | $ | (67 | ) | | $ | 11,292 |
| | | Other comprehensive loss: Unrealized losses on available-for-sale investment securities | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (28 | ) | | (28 | ) | | (28 | ) | Issuance of common stock in connection with the exercise of warrants | — |
| | — |
| | 1,048,633 |
| | 1 |
| | — |
| | — |
| | — |
| | — |
| | 440 |
| | — |
| | — |
| | 441 |
| | |
| Issuance of common stock in connection with the cashless exercise of warrants | (1 | ) | | (441 | ) | | 700,000 |
| | 1 |
| | — |
| | — |
| | — |
| | — |
| | 440 |
| | — |
| | — |
| | — |
| | | Issuance of common stock in connection with the vesting of restricted stock | — |
| | — |
| | 399,898 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | |
| Issuance of common stock for the services of Directors | — |
| | — |
| | 267,068 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | |
| Issuance of common stock in payment of preferred stock dividends | — |
| | — |
| | 476,776 |
| | 1 |
| | — |
| | — |
| | — |
| | — |
| | 654 |
| | — |
| | — |
| | 655 |
| | |
| Issuance of common stock for professional services of third parties | — |
| | — |
| | 68,028 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 104 |
| | — |
| | — |
| | 104 |
| | | Issuance of common stock in connection with the issuance of stock purchase agreements | — |
| | — |
| | 483,278 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 700 |
| | — |
| | — |
| | 700 |
| | | Conversion of Class B to Class A | — |
| | — |
| | 708,811 |
| | 1 |
| | (708,811 | ) | | (1 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| �� | — |
| | | Issuance of common stock for payment of bonus | — |
| | — |
| | 63,560 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | | Fair value of warrant liability upon the effectiveness of a registration statement | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 16,054 |
| | — |
| | — |
| | 16,054 |
| | | Accretion of preferred stock dividends | — |
| | 108 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (108 | ) | | — |
| | — |
| | — |
| | | Preferred stock dividends | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (394 | ) | | — |
| | (394 | ) | | | Costs associated with issuance of common stock | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (66 | ) | | — |
| | — |
| | (66 | ) | | | Stock-based compensation | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 2,265 |
| | — |
| | — |
| | 2,265 |
| | | Net loss | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (29,236 | ) | | — |
| | (29,236 | ) | | (29,236 | ) | Balances as of March 31, 2011 | 7 |
| | $ | 3,250 |
| | 32,320,287 |
| | $ | 32 |
| | 25,000 |
| | $ | — |
| | (51,440 | ) | | $ | (172 | ) | | $ | 196,420 |
| | $ | (197,648 | ) | | $ | (95 | ) | | $ | 1,787 |
| | $ | (29,264 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Series A Preferred Stock | | Class A Common Stock | | Class B Common Stock | | Treasury Stock | | Additional Paid-In | | Accumulated | | Total Stockholders’ | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | Capital | | Deficit | | Deficit | Balances as of March 31, 2012 | 7 |
| | $ | 3,357 |
| | 37,671,487 |
| | $ | 38 |
| | 25,000 |
| | $ | — |
| | (51,440 | ) | | $ | (172 | ) | | $ | 206,348 |
| | $ | (221,044 | ) | | $ | (11,473 | ) | Issuance of common stock in connection with the vesting of restricted stock | — |
| | — |
| | 94,318 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (9 | ) | | — |
| | (9 | ) | Issuance of common stock for the services of Directors | — |
| | — |
| | 223,332 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 300 |
| | — |
| | 300 |
| Issuance of common stock in connection with April 2012 offering | — |
| | — |
| | 7,857,143 |
| | 8 |
| | — |
| | — |
| | — |
| | — |
| | 10,992 |
| | — |
| | 11,000 |
| Issuance of common stock in connection with acquisition of New Video Group | — |
| | — |
| | 2,525,417 |
| | 2 |
| | — |
| | — |
| | — |
| | — |
| | 3,430 |
| | — |
| | 3,432 |
| Conversion of Class B common stock to Class A common stock | — |
| | — |
| | 25,000 |
| | — |
| | (25,000 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| Costs associated with issuance of common stock | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (1,121 | ) | | — |
| | (1,121 | ) | Stock-based compensation | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 1,979 |
| | — |
| | 1,979 |
| Preferred stock dividends | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (356 | ) | | (356 | ) | Accretion of preferred stock dividends | — |
| | 109 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (109 | ) | | — |
| | — |
| Net loss | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (21,066 | ) | | (21,066 | ) | Balances as of March 31, 2013 | 7 |
| | $ | 3,466 |
| | 48,396,697 |
| | $ | 48 |
| | — |
| | $ | — |
| | (51,440 | ) | | $ | (172 | ) | | $ | 221,810 |
| | $ | (242,466 | ) | | $ | (17,314 | ) |
See accompanying notes to Consolidated Financial Statements
CINEDIGM DIGITAL CINEMA CORP. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ (DEFICIT) EQUITY AND COMPREHENSIVE LOSSDEFICIT (In thousands, except share data) | | | Series A Preferred Stock | | Class A Common Stock | | Class B Common Stock | | Treasury Stock | | Additional Paid-In | | Accumulated | | Accumulated Other Comprehensive | | Total Stockholders’ | | Total Comprehensive | Series A Preferred Stock | | Class A Common Stock | | Class B Common Stock | | Treasury Stock | | Additional Paid-In | | Accumulated | | Accumulated Other Comprehensive | | Total Stockholders’ | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | Capital | | Deficit | | Loss | | (Deficit) Equity | | Loss | Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | Capital | | Deficit | | Loss | | Deficit | Balances as of March 31, 2011 | 7 |
| | $ | 3,250 |
| | 32,320,287 |
| | $ | 32 |
| | 25,000 |
| | $ | — |
| | (51,440 | ) | | $ | (172 | ) | | $ | 196,420 |
| | $ | (197,648 | ) | | (95 | ) | | $ | 1,787 |
| | | 7 |
| | $ | 3,250 |
| | 32,320,287 |
| | $ | 32 |
| | 25,000 |
| | $ | — |
| | (51,440 | ) | | $ | (172 | ) | | $ | 196,420 |
| | $ | (197,648 | ) | | (95 | ) | | $ | 1,787 |
| Other comprehensive gain: Unrealized gain on available-for-sale investment securities | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 95 |
| | 95 |
| | 95 |
| — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 95 |
| | 95 |
| Issuance of common stock in connection with the exercise of warrants and stock options | — |
| | — |
| | 93,628 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 129 |
| | — |
| | — |
| | 129 |
| |
| — |
| | — |
| | 93,628 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 129 |
| | — |
| | — |
| | 129 |
| Issuance of common stock in connection with the vesting of restricted stock | — |
| | — |
| | 413,055 |
| | 1 |
| | — |
| | — |
| | — |
| | — |
| | (1 | ) | | — |
| | — |
| | — |
| | | — |
| | — |
| | 413,055 |
| | 1 |
| | — |
| | — |
| | — |
| | — |
| | (1 | ) | | — |
| | — |
| | — |
| Issuance of common stock for the services of Directors | — |
| | — |
| | 253,202 |
| | 1 |
| | — |
| | — |
| | — |
| | — |
| | 426 |
| | — |
| | — |
| | 427 |
| | | — |
| | — |
| | 253,202 |
| | 1 |
| | — |
| | — |
| | — |
| | — |
| | 426 |
| | — |
| | — |
| | 427 |
| Issuance of common stock for professional services of third parties | — |
| | — |
| | 50,000 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 86 |
| | — |
| | — |
| | 86 |
| | | — |
| | — |
| | 50,000 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 86 |
| | — |
| | — |
| | 86 |
| Issuance of common stock warrants for professional services of third parties | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 500 |
| | — |
| | — |
| | 500 |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 500 |
| | — |
| | — |
| | 500 |
| Issuance of common stock in connection with the payment of bonus | — |
| | — |
| | 213,936 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 357 |
| | — |
| | — |
| | 357 |
| | | — |
| | — |
| | 213,936 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 357 |
| | — |
| | — |
| | 357 |
| Issuance of common stock in connection with a private placement | — |
| | — |
| | 4,338,750 |
| | 4 |
| | — |
| | — |
| | — |
| | — |
| | 6,938 |
| | — |
| | — |
| | 6,942 |
| | | — |
| | — |
| | 4,338,750 |
| | 4 |
| | — |
| | — |
| | — |
| | — |
| | 6,938 |
| | — |
| | — |
| | 6,942 |
| Costs associated with issuance of common stock | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (449 | ) | | — |
| | — |
| | (449 | ) | | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (449 | ) | | — |
| | — |
| | (449 | ) | Stock-based compensation | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 2,049 |
| | — |
| | — |
| | 2,049 |
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 2,049 |
| | — |
| | — |
| | 2,049 |
| Cancellation of common stock shares | — |
| | — |
| | (11,371 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | | — |
| | — |
| | (11,371 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| Preferred stock dividends | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (356 | ) | | — |
| | (356 | ) | | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (356 | ) | | — |
| | (356 | ) | Accretion of preferred stock dividends | — |
| | 107 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (107 | ) | | — |
| | — |
| | — |
| | | — |
| | 107 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (107 | ) | | — |
| | — |
| | — |
| Net loss | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (23,040 | ) | | — |
| | (23,040 | ) | | (23,040 | ) | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (23,040 | ) | | — |
| | (23,040 | ) | Balances as of March 31, 2012 | 7 |
| | $ | 3,357 |
| | 37,671,487 |
| | $ | 38 |
| | 25,000 |
| | $ | — |
| | (51,440 | ) | | $ | (172 | ) | | $ | 206,348 |
| | $ | (221,044 | ) | | $ | — |
| | $ | (11,473 | ) | | $ | (22,945 | ) | 7 |
| | $ | 3,357 |
| | 37,671,487 |
| | $ | 38 |
| | 25,000 |
| | $ | — |
| | (51,440 | ) | | $ | (172 | ) | | $ | 206,348 |
| | $ | (221,044 | ) | | $ | — |
| | $ | (11,473 | ) |
See accompanying notes to Consolidated Financial Statements
CINEDIGM DIGITAL CINEMA CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) | | | | | | | | | | For the Fiscal Year Ended March 31, | | 2013 | | 2012 | Cash flows from operating activities | | | | Net loss | $ | (21,066 | ) | | $ | (23,040 | ) | Adjustments to reconcile net loss to net cash provided by operating activities: | | | | Gain on disposal of business | — |
| | 3,696 |
| Depreciation and amortization of property and equipment and amortization of intangible assets | 38,063 |
| | 39,028 |
| Amortization of capitalized software costs | 1,165 |
| | 759 |
| Impairment of assets | — |
| | 1,192 |
| Amortization of debt issuance costs | 2,120 |
| | 2,127 |
| Provision for doubtful accounts | 490 |
| | 771 |
| Stock-based compensation and expenses | 2,279 |
| | 3,418 |
| Change in fair value of interest rate derivatives | (1,231 | ) | | (200 | ) | PIK interest expense added to note payable | 7,072 |
| | 7,038 |
| Loss on extinguishment of notes payable | 7,905 |
| | — |
| (Income) loss on investment in non-consolidated entity | (322 | ) | | 510 |
| Accretion of note payable | 2,081 |
| | 2,434 |
| Benefit from deferred income taxes | (5,019 | ) | | — |
| Changes in operating assets and liabilities, net of acquisition: | | | | Accounts receivable | 860 |
| | (10,410 | ) | Unbilled revenue | (2,403 | ) | | (925 | ) | Prepaid expenses and other current assets | (3,967 | ) | | (154 | ) | Other assets | (1,168 | ) | | 663 |
| Accounts payable and accrued expenses | 4,235 |
| | 11,521 |
| Deferred revenue | (612 | ) | | 1,830 |
| Other liabilities | (1,113 | ) | | (320 | ) | Net cash provided by operating activities | 29,369 |
| | 39,938 |
| Cash flows from investing activities: | | | | Net proceeds from disposal of businesses | — |
| | 6,271 |
| Purchase of New Video Group, Inc., net of cash acquired of $6,873 | (3,127 | ) | | — |
| Purchases of property and equipment | (6,476 | ) | | (16,395 | ) | Purchases of intangible assets | (32 | ) | | (47 | ) | Additions to capitalized software costs | (3,092 | ) | | (2,147 | ) | Sales/maturities of restricted available-for-sale investments | 9,477 |
| | 2,403 |
| Purchase of restricted available-for-sale investments | — |
| | (5,400 | ) | Investment in non-consolidated entity | — |
| | (2,000 | ) | Restricted cash | (1,000 | ) | | — |
| Net cash used in investing activities | (4,250 | ) | | (17,315 | ) | Cash flows from financing activities: | | | | Repayment of notes payable | (232,507 | ) | | (7,641 | ) | Proceeds from notes payable | 199,118 |
| | 15,794 |
| Repayment of term loans | — |
| | (30,151 | ) | Payments of debt issuance costs | (5,853 | ) | | — |
| Principal payments on capital leases | (151 | ) | | (152 | ) | Proceeds from issuance of Class A common stock | 11,000 |
| | 7,071 |
| Costs associated with issuance of Class A common stock | (1,121 | ) | | (449 | ) | Net cash used in financing activities | (29,514 | ) | | (15,528 | ) | Net change in cash and cash equivalents | (4,395 | ) | | 7,095 |
| Cash and cash equivalents at beginning of year | 17,843 |
| | 10,748 |
| Cash and cash equivalents at end of year | $ | 13,448 |
| | $ | 17,843 |
|
See accompanying notes to Consolidated Financial Statements
CINEDIGM DIGITAL CINEMA CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the fiscal years ended March 31, 20122013 and 20112012 ($ in thousands, except for share and per share data)
Cinedigm Digital Cinema Corp. was incorporated in Delaware on March 31, 2000 (“Cinedigm”, and collectively with its subsidiaries, the “Company”).
TheOver the past decade, the Company ishas played a significant role in the digital distribution revolution that continues to transform the media landscape. In addition to its pioneering role in transitioning almost 12,000 movie screens from traditional film prints to digital distribution, the Company continues to advance worldwide cinema services,modernization with its suite of software products allowing exhibitors and distributors to manage their newly digital businesses with efficiency, insight and lower costs. And, as a leading distributor of independent content, marketingthe Company collaborates with producers and distribution company supporting and capitalizing on the conversion of the exhibition industry from filmcommunity to digital technologymarket, source, curate and the accelerating shift in thedistribute quality content to targeted and profitable audiences through (i) theatrical releases, (ii) existing and emerging digital home entertainment market to digitalplatforms, including iTunes, Amazon Prime, Netflix, xBox, Playstation, and cable video-on-demand services from("VOD") and (iii) physical goods, such as DVDs. The Company provides a digital cinema platform that combines technology solutions, financial adviceincluding DVD and guidance, and software services to content owners and distributors and to movie exhibitors. Cinedigm leverages this digital cinema platform with a series of business applications that utilize the platform to capitalize on the new business opportunities created by the transformation of movie theatres into networked entertainment centers. The two main applications provided by Cinedigm include (i) its end-to-end digital entertainment content acquisition, marketing and distribution business focused on the distribution of alternative content and independent film in theatrical and ancillary home entertainment markets; and (ii) its operational, analytical and transaction processing software applications. Historically, the conversion of an industry from analog to digital has created new revenue and growth opportunities as well as an opening for new players to emerge to capitalize on this technological shift.Blu-ray.
The Company reports its financial results in four primary segments as follows: (1) the first digital cinema deployment (“Phase I Deployment”), (2) the second digital cinema deployment (“Phase II Deployment”), (3) digital cinema services (“Services”) and (4) media content and entertainment (“Content & Entertainment”). The Phase I Deployment and Phase II Deployment segments are the non-recourse, financing vehicles and administrators for the Company's digital cinema equipment (the “Systems”) installed in movie theatres nationwide. The Services segment provides services, software and support to the Phase I Deployment and Phase II Deployment segments as well as directly to exhibitors and other third party customers. Included in these services are asset management services for a specified fee via service agreements with Phase I Deployment and Phase II Deployment as well as third party exhibitors as buyers of their own digital cinema equipment; and software license, maintenance and consulting services to Phase I and Phase II Deployment, various other exhibitors, studios and other content organizations. These services primarily facilitate the conversion from analog to digital cinema and have positioned the Company at what it believes to be the forefront of a rapidly developing industry relating to the distribution and management of digital cinema and other content to theatres and other remote venues worldwide. The Content & Entertainment segment, which includes our acquired wholly-owned subsidiary Cinedigm Entertainment Corp., f/k/a New Video Group, Inc. ("New Video") as described below, provides content marketing and distribution services in both theatrical and ancillary home entertainment markets to alternative and independent filmmovie content owners and to theatrical exhibitors.
On April 20, 2012, we acquiredPurchase of New Video Group, Inc. ("
On April 19, 2012, the Company entered into a stock purchase agreement for the purchase of all of the issued and outstanding capital stock of New Video"),Video, an independent home entertainment distributor of quality packaged goods entertainment and digital content that provides distribution services in the DVD, BD,Blu-ray, Digital and VOD channels for more than 500 independent rights holders (see also Note 17)(the “New Video Acquisition”). The Company paid $10.0 million in cash and 2,525,417 shares of Class A common stock at $1.51 per share, subject to certain transfer restrictions, plus up to an additional $6.0 million in cash or Class A common stock, at the Company’s discretion, if certain business unit financial performance targets are met during the fiscal years ended March 31, 2013, 2014 and 2015. In addition, the Company registered the resale of the shares of Class A common stock paid as part of the purchase price, which registration was declared effective by the Securities and Exchange Commission ("SEC") on April 2, 2013. The New Video will be integrated intoAcquisition was consummated on April 20, 2012. Merger and acquisition expenses, consisting primarily of professional fees, directly related to the New Video Acquisition totaled $1.9 million, of which $1.3 million was incurred during the fiscal year ended March 31, 2013.
The results of operations of New Video have been included in the accompanying consolidated statements of operations from the date of the acquisition within the Company's Content & Entertainment segment. The total amount of revenues and net income of New Video since the acquisition date that have been included in the consolidated statements of operations for the fiscal year ended March 31, 2013 was approximately $13.4 million and $1.5 million, respectively.
DuringThe aggregate purchase price after post-closing adjustments for 100% of the equity of New Video was $17.2 million, including cash acquired of $6.9 million.
The purchase price has been allocated to the identifiable net assets acquired as of the date of acquisition as follows: | | | | | | Cash and cash equivalents | | $ | 6,873 |
| Accounts receivable | | 8,983 |
| Other assets | | 1,142 |
| Intangible assets subject to amortization | | 13,915 |
| Goodwill | | 6,974 |
| Total assets acquired | | 37,887 |
| Less: Total liabilities assumed | | (15,661 | ) | Less: Net deferred tax liability | | (5,019 | ) | Total net assets acquired | | $ | 17,207 |
|
Of the $13,915 of intangible assets subject to amortization, $9,671 was assigned to customer relationships with a useful life of 15 years, $2,769 was assigned to a content library with a useful life of five years, $1,193 was assigned to a favorable lease with a useful life of approximately four years and $282 was assigned to covenants not to compete with a useful life of two years.
The fair values assigned to intangible assets were determined through the application of various commonly used and accepted valuation procedures and methods, including the multi-period excess earnings method. These valuation methods rely on management judgment, including expected future cash flows resulting from existing customer relationships, customer attrition rates, contributory effects of other assets utilized in the business, peer group cost of capital and royalty rates, and other factors. The valuation of tangible assets was determined to approximate book value at the time of the New Video Acquisition. Useful lives for intangible assets were determined based upon the remaining useful economic lives of the intangible assets that are expected to contribute directly or indirectly to future cash flows. The goodwill of $6,974 represents the premium the Company paid over the fair value of the net tangible and intangible assets acquired. Goodwill is principally attributed to the assembled workforce and synergies anticipated as a result of the New Video Acquisition.
Upon concluding the purchase price allocation for the New Video Acquisition in the fourth quarter of the fiscal year ended March 31, 2012,2013, a measurement period adjustment was made to establish a deferred tax liability with a corresponding increase in goodwill at the acquisition date. As a result of this adjustment and the assessment of its consolidated tax filing status, the Company discontinued and solddetermined it was appropriate to release a portion of its deferred tax valuation allowance established prior to the following non-core businesses:New Video Acquisition as discussed in Note 14. Accordingly, the previously reported condensed consolidated statement of operations for the three months ended June 30, 2012 should have been revised as follows:
In September 2011, the Company completed the sale of its cinema advertising services business, Unique Screen Media ("USM") to a third party, which was previously included in our Content & Entertainment segment; andIn November 2011, the Company completed the sale of the majority of assets of its Digital Media Services Division (“DMS”) digital distribution and delivery business, which was previously included in our Services segment, to a third party. | | | | | | | | | | | | | | As Reported | | As Adjusted | | Change | Statement of operations | | | | | | Loss from continuing operations before benefit from income taxes | $ | (4,868 | ) | | $ | (4,868 | ) | | $ | — |
| Benefit from income taxes | — |
| | 5,019 |
| | 5,019 |
| Loss from continuing operations | (4,868 | ) | | 151 |
| | 5,019 |
| Net loss | (5,152 | ) | | (133 | ) | | 5,019 |
| Net loss attributable to common stockholders | (5,241 | ) | | (222 | ) | | 5,019 |
| | | | | | | Net loss per Class A and Class B common share attributable to common shareholders - basic and diluted: | | | | | | Loss from continuing operations | $ | (0.11 | ) | | $ | — |
| | $ | 0.11 |
| Loss from discontinued operations | (0.01 | ) | | (0.01 | ) | | — |
| | $ | (0.12 | ) | | $ | (0.01 | ) | | $ | 0.11 |
|
As a consequence, it was determined thatPro forma Information Related To the above former businesses met the criteria for classification as discontinued operations during the respective periods and their respective assets and liabilities met the criteria for classification as “assets held for sale” and “liabilities as partAcquisition of assets held for sale”, respectively. The consolidated financial statements and the notes to consolidated financial statements presented herein have been recast solely to reflect the adjustments resulting from these changes in classification. Please see Note 3 for further information.New Video
In additionThe following unaudited consolidated pro forma summary information for the fiscal year ended March 31, 2012 has been prepared by adjusting the historical data as set forth in the accompanying consolidated statements of operations for the for the fiscal year ended March 31, 2012 to give effect to the above,acquisition of New Video as if it had occurred at April 1, 2011. As the Company has classified certainacquisition of its businesses as discontinued operations, including the motion picture exhibition to the general public (“Pavilion Theatre”), information technology consulting services and managed network monitoring services (“Managed Services”) and hosting services and network access for other web hosting services (“Access
Digital Server Assets”), all of which were separate reporting units previously included in our former "Other" segment. In August 2010,New Video was consummated near the Company sold both Managed Services and the Access Digital Server Assets to third parties. In May 2011, the Company completed the sale of certain assets and liabilitiesbeginning of the Pavilion Theatrefiscal year ended March 31, 2013, the difference between actual operating results and pro forma results for the fiscal year ended March 31, 2013 is not substantial.
| | | | | | | | | | | | For the Fiscal Year Ended March 31, | | | (Unaudited) | | | 2013 | | 2012 | Revenue | | $ | 88,080 |
| | $ | 89,288 |
| Operating income | | $ | 12,164 |
| | $ | 17,142 |
| Net loss | | $ | (21,066 | ) | | $ | (21,092 | ) | | | | | | Net loss per share (basic and diluted) | | $ | (0.45 | ) | | $ | (0.59 | ) |
This unaudited pro forma information is provided for informational purposes only and does not purport to a third party. As a resultbe indicative of the sales,results of operations that would have occurred if the "Other" segment no longer exists as a reportable segmentacquisition had been completed on the date set forth above, nor is it necessarily indicative of the Company. Additional information related to the Company's reportable segments can be found in Note 11.future operating results.
| | 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
BASIS OF PRESENTATION AND CONSOLIDATION
For the fiscal years ended March 31, 2012 and 2011, theThe Company has incurred net losses of $23,040historically and$29,236, respectively. For the fiscal years ended March 31, 2012 and 2011, the Company’s operating activities provided cash of $39,938 and $30,075, respectively. The Company has an accumulated deficit of $221,044242,466 as of March 31, 20122013. The Company also has significant contractual obligations related to its recourse and non-recourse debt for the fiscal year 2012ended March 31, 2013 and beyond. Management expects that theThe Company willmay continue to generate net losses for the foreseeable future. Based on the Company’s cash position at March 31, 20122013, and expected cash flows from operations, as well as additional capital raises, management believes that the Company has the ability to meet its obligations through at least March 31, 2014, 2013. The Company has signed commitment letters for additional non-recourse debt capital, primarily to meet equipment requirements related to the Company’s Phase II Deployment, and there is no assurance that financing for the Phase II Deployment will be completed as contemplated or under terms acceptable to the Company or its existing stockholders.. Failure to generate additional revenues, raise additional capital or manage discretionary spending could have a materialan adverse effect on the Company’s ability to continue as a going concern.financial position, results of operations or liquidity.
The Company’s consolidated financial statements include the accounts of Cinedigm, Access Digital Media, Inc. (“AccessDM”), Hollywood Software, Inc. d/b/a Cinedigm Software (“Software”), Core Technology Services, Inc. (“Managed Services”) (sold in August 2010), FiberSat Global Services, Inc. d/b/a Cinedigm Satellite and Support Services (“Satellite”), ADM Cinema Corporation (“ADM Cinema”) d/b/a the Pavilion Theatre (certain assets and liabilities of which were sold in May 2011), Christie/AIX, Inc. ("C/AIX") d/b/a Cinedigm Digital Cinema (“Phase 1 DC”), USM (sold in September 2011), Vistachiara Productions, Inc. f/k/a The Bigger Picture, currently d/b/a Cinedigm Content and Entertainment Group, (“CEG”),New Video, Access Digital Cinema Phase 2 Corp. (“Phase 2 DC”), Cinedigm Digital Cinema Australia Pty Ltd, Access Digital Cinema Phase 2 B/AIX Corp. (“Phase 2 B/AIX”) and, Cinedigm Digital Funding I, LLC (“CDF I”) and Cinedigm DC Holdings LLC ("DC Holdings LLC"). Content and Entertainment Group and New Video are together referred to as CEG. AccessDM and Satellite are together referred to as the DMS (the majority of which was sold in November, 2011)2011 and remaining assets of which were sold in May 2012). All intercompany transactions and balances have been eliminated in consolidation.
INVESTMENT IN NON-CONSOLIDATED ENTITY
The Company holds a indirectly owns 100% of the common equity interest inof CDF2 Holdings, LLC , which wholly owns Cinedigm Digital Funding 2, LLC (together, “CDF2”("Holdings"), which is a variable interest entityVariable Interest Entity (“VIE”), as defined in Accounting Standards Codification (“ASC”) Topic 810 ("ASC 810"), “Consolidation". CDF2commenced operations on October 18, 2011 and is in business to purchase and deploy digital projection systems to movie theatre auditoriums across the United States (See Note 6). CDF2The Company has entered into various finance agreements with multiple third parties unrelated to the Company to finance its business and has also entered into a management service agreement (“MSA”) with CDF2 Holdings, LLC, an indirect wholly-owned non-consolidated variable interest entity that is intended to be a special purpose, bankruptcy remote entity for administrative services related to the installation of these digital systems and management of contracts and administrative services for CDF2. ASC 810 requires the consolidation of VIEs by the entity that has a controlling financial interest in the VIE which entity is thereby defined as the primary beneficiary of the VIE. To be a primary beneficiary, an entity must have the power to direct the activities of a VIE that most significantly impact the VIE's economic performance, among other factors. During the current period, the Company assessed the variable interests in CDF2 and determined that the Company wasit is not the primary beneficiary of CDF2Holdings in accordance with ASC 810, and it is accounting for its investment in CDF2Holdings under the equity method (See Note 6). In completing this assessment, the Company identified the activities that it considers most significant to the economic performance of CDF2 and determined that it does not have the power to direct those activities. Specifically, both the Company and a third party, which also has a variable interestaccounting. The Company's net investment in CDF2 must mutually approve all business activities and transactions that significantly impact CDF2's economic performance. As a result, CDF2Holdings is not consolidatedreflected as “Investment in non-consolidated entity, net" in the Company's results. The Company's maximum exposure to loss as it relates to CDF2 as of March 31, 2012 includes:accompanying consolidated balance sheets. See Note 6 for further discussion.
The investment in the equity of CDF2 of $1,490; and
Accounts receivable due from CDF2 for service fees under its MSA of $668.RECLASSIFICATION
DuringCertain reclassifications, principally for discontinued operations (see Note 3) have been made to the fiscal year ended March 31, 2012, the Company received $458 in aggregate revenues from CDF2, included in revenues on the accompanying consolidated financial statements of operations.
RECLASSIFICATION
The assets and liabilities of discontinued operations have been reported as assets and liabilities held for sale for all periods presented. The consolidated balance sheet as of March 31, 2011 and consolidated statement of operations for the fiscal year ended March 31, 2011 were reclassified to conform to the current period presentation for all discontinued operations. Certain other fiscal year ending March 31, 2011 amounts have been reclassified to conform to the March 31, 20122013 presentation.
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of AmericaGenerally Accepted Accounting Principles ("GAAP") requires management to make estimates and assumptions that affect the assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period.
Such estimates include the adequacy of accounts receivable reserves, assessment of goodwill and intangible asset impairment and valuation reserve for income taxes, among others. Actual results could differ from these estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original maturity of three months or less to be “cash equivalents.” The Company maintains bank accounts with major banks, which from time to time may exceed the Federal Deposit Insurance Corporation’s (“FDIC”) insured limits. The Company periodically assesses the financial condition of the institutions and believes that the risk of any loss is minimal.
RESTRICTED AVAILABLE-FOR-SALE INVESTMENTS
In connection with $172,500 of term loans issued in May 2010 (See Note 7), the sale of USM in September 2011 and the sale of the majority of assets of DMS in November 2011 (See Note 3), the Company segregated $9,477 of the combined proceeds received in the transactions into an account to be used with the approval of the 2010 Note holder either (i) to support an acquisition by the Company; or (ii) to repay the 2010 Note. During the fiscal year ended March 31, 2013, these funds were released from restricted available-for-sale investments and used to finance a portion of the cost of the New Video Acquisition in April 2012 (See Note 1).
ACCOUNTS RECEIVABLE
The Company maintains reserves for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. Reserves are recorded primarily on a specific identification basis. Allowance for doubtful accounts amounted to $257$699 and $73$257 as of March 31, 20122013 and 2011,2012, respectively.
Accounts receivable, long-term result from up-front activation fees with extended payment terms that are discounted to their present value at prevailing market rates.
RESTRICTED AVAILABLE-FOR-SALE INVESTMENTS
In connection with the $75,000 Senior Secured Note issued in August 2009 (See Note 7), the Company was required to segregate a portion of the proceeds into marketable securities, which was used to pay interest over the first two years and segregate a portion of proceeds from sales activities into restricted use marketable securities. The Company classified these marketable securities as restricted available-for-sale investments and fully utilized these marketable securities to pay interest in September 2011. This segregated account has since been discontinued.
In connection with $172,500 of term loans issued in May 2010 (See Note 7), the sale of USM in September 2011 and the sale of the majority of assets of DMS in November 2011 (See Note 3), the Company segregated $9,477 of the combined proceeds received in the transactions into an account to be used with the approval of the 2010 Noteholder either (i) to support an acquisition by the Company; or (ii) to repay the 2010 Note. These funds were released from restricted available-for-sale investments and used to finance a portion of the cost of the acquisition of New Video Group, Inc. in April 2012 (See Note 17).
Restricted available-for-sale investment securities with a maturity of twelve months or less are classified as short-term and investment securities with a maturity greater than twelve months are classified as long-term. These investments are recorded at fair value. As of March 31, 2012, there were no long-term restricted available-for-sale investments.
The changes in the value of these investments are recorded in other comprehensive gain/loss in the consolidated statements of Stockholders' (Deficit) Equity and Comprehensive Loss. During the fiscal year ended March 31, 2012, other comprehensive gain was $95. During the fiscal year ended March 31, 2011, other comprehensive loss was $28. Realized gains and losses are recorded in the consolidated statements of operations when securities mature or are redeemed. During the fiscal years ended March 31, 2012 and 2011, the Company recognized realized losses of $92 and $87, respectively.
The carrying value and fair value of restricted available-for-sale investments were as follows:
| | | | | | | | | | | | | | | | | | As of March 31, 2012 | | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value | Cash equivalent funds, money markets | $ | 9,477 |
| | $ | — |
| | $ | — |
| | $ | 9,477 |
| | $ | 9,477 |
| | $ | — |
| | $ | — |
| | $ | 9,477 |
|
| | | | | | | | | | | | | | | | | | As of March 31, 2011 | | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value | U.S. Treasury securities | $ | 710 |
| | $ | — |
| | $ | (42 | ) | | $ | 668 |
| Obligations of U.S. government agencies and FDIC guaranteed bank debt | 1,270 |
| | — |
| | (51 | ) | | 1,219 |
| Cash equivalent funds, primarily money markets | 4,545 |
| | — |
| | — |
| | 4,545 |
| Other interest bearing securities | 50 |
| | — |
| | (2 | ) | | 48 |
| | $ | 6,575 |
| | $ | — |
| | $ | (95 | ) | | $ | 6,480 |
|
RESTRICTED CASH
In connection with the 2010 Term Loans issued in May 2010, (See2013 Term Loans issued in February 2013 and 2013 Prospect Loan Agreement issued in February 2013 (collectively, see Note 7), the Company maintains cash restricted for repaying interest on the Term Loans,respective loans as follows:
| | | | | | | | | | | | As of March 31, 2012 | | As of March 31, 2011 | Reserve account related to the 2010 Term Loans (See Note 7) | | $ | 5,751 |
| | $ | 5,751 |
|
| | | | | | | | | | | | As of March 31, 2013 | | As of March 31, 2012 | Reserve account related to the 2010 Term Loans (See Note 7) | | $ | — |
| | $ | 5,751 |
| Reserve account related to the 2013 Term Loans (See Note 7) | | 5,751 |
| | — |
| Reserve account related to the 2013 Prospect Loan Agreement (See Note 7) | | 1,000 |
| | — |
| | | $ | 6,751 |
| | $ | 5,751 |
|
DEFERRED COSTS
Deferred costs primarily consist of unamortized debt issuance costs related to the 2013 Term Loans and 2013 Prospect Loan (see Note 7) which are amortized under the effective interest rate method over the terms of the respective debt. All other unamortized debt issuance costs are amortized on a straight-line basis over the term of the respective debt. TheFor such debt, amortization on a straight-line basis is not materially different from the effective interest method.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation expense is recorded using the straight-line method over the estimated useful lives of the respective assets as follows:
| | | Computer equipment and software | 3-53 - 5 years | Digital cinema projection systems | 10 years | Machinery and equipment | 3-103 - 10 years | Furniture and fixtures | 3-63 - 6 years |
Leasehold improvements are amortized over the shorter of the lease term or the estimated useful life of the leasehold improvements. Maintenance and repair costs are charged to expense as incurred. Major renewals, improvements and additions are capitalized. Upon the sale or other disposition of any property and equipment, the cost and related accumulated depreciation and amortization are removed from the accounts and the gain or loss on disposal is included in the consolidated statements of operations.
ACCOUNTING FOR DERIVATIVE ACTIVITIES
Derivative financial instruments are recorded at fair value. In May 2010, the Company settled the interest rate swap in place with respect to its previous credit facility. In June 2010, theThe Company executedhas three separate interest rate swap agreements (the “Interest Rate Swaps”) to limit the Company’s exposure to changes in interest rates related to the 20102013 Term Loans. Additionally, the Company entered into two separate interest rate cap transactions during the fiscal year ended March 31, 2013 to limit the Company's exposure to interest rates related to the 2013 Term Loans and 2013 Prospect Loan. Changes in fair value of derivative financial instruments are either recognized in accumulated other comprehensive loss (a component of stockholders' equity (deficit))deficit) or in the consolidated statements of operations depending on whether the derivative qualifies for hedge accounting. The Company has not sought hedge accounting treatment for these instruments and therefore, changes in the value of its Interest Rate Swaps and caps were recorded in the consolidated statements of operations (See Note 7).
FAIR VALUE MEASUREMENTS
The fair value measurement disclosures are grouped into three levels based on valuation factors: Level 1 – quoted prices in active markets for identical investments Level 2 – other significant observable inputs (including quoted prices for similar investments and market corroborated inputs, etc.)inputs) Level 3 – significant unobservable inputs (including the Company’s own assumptions in determining the fair value of investments) Assets and liabilities measured at fair value on a recurring basis use the market approach, where prices and other relevant information are generated by market transactions involving identical or comparable assets or liabilities.
The following tables summarize the levels of fair value measurements of the Company’s financial assets: | | | | | | | | | | | | | | | | | | | | As of March 31, 2013 | | | Level 1 | | Level 2 | | Level 3 | | Total | Cash equivalents | | $ | 1,004 |
| | $ | — |
| | $ | — |
| | $ | 1,004 |
| Restricted cash | | 6,751 |
| | — |
| | — |
| | 6,751 |
| Interest rate derivatives | | — |
| | (544 | ) | | — |
| | (544 | ) | Contingent consideration | | — |
| | — |
| | (3,250 | ) | | (3,250 | ) | | | $ | 7,755 |
| | $ | (544 | ) | | $ | (3,250 | ) | | $ | 3,961 |
|
| | | | As of March 31, 2012 | | As of March 31, 2012 | | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total | Cash and cash equivalents | | $ | 17,843 |
| | $ | — |
| | $ | — |
| | $ | 17,843 |
| | Restricted available-for-sale investments | | 9,477 |
| | — |
| | — |
| | 9,477 |
| | 9,477 |
| | — |
| | — |
| | 9,477 |
| Restricted cash | | 5,751 |
| | — |
| | — |
| | 5,751 |
| | 5,751 |
| | — |
| | — |
| | 5,751 |
| Interest rate swap | | — |
| | (1,771 | ) | | — |
| | (1,771 | ) | | Interest rate derivatives | | | — |
| | (1,771 | ) | | — |
| | (1,771 | ) | | | $ | 33,071 |
| | $ | (1,771 | ) | | $ | — |
| | $ | 31,300 |
| | $ | 15,228 |
| | $ | (1,771 | ) | | $ | — |
| | $ | 13,457 |
|
Contingent consideration is a liability to the sellers of New Video based upon its business unit financial performance target in each of the fiscal years ended March 31, 2013, 2014 and 2015 (see Note 1). The estimates of the fair value of the contingent consideration arrangement was estimated by using the current forecast of New Video adjusted EBITDA, as defined by the New
Video stock purchase agreement. That measure is based on significant inputs that are not observable in the market, which are considered Level 3 inputs.
The following summarized changes in contingent consideration liabilities in during the fiscal year ended March 31, 2013: | | | | | | | | | | | | | | | | | | | | As of March 31, 2011 | | | Level 1 | | Level 2 | | Level 3 | | Total | Cash and cash equivalents | | $ | 10,748 |
| | $ | — |
| | $ | — |
| | $ | 10,748 |
| Restricted available-for-sale investments | | 5,761 |
| | 51 |
| | — |
| | 5,812 |
| Restricted cash | | 5,751 |
| | — |
| | — |
| | 5,751 |
| Interest rate swap | | — |
| | (1,971 | ) | | — |
| | (1,971 | ) | | | $ | 22,260 |
| | $ | (1,920 | ) | | $ | — |
| | $ | 20,340 |
|
| | | | | | Balance at March 31, 2012 | | $ | — |
| Contingent consideration at time of purchase | | 3,844 |
| Change in fair value | | (594 | ) | Balance at March 31, 2013 | | $ | 3,250 |
|
Key assumptions include a discount rate of 7% and that New Video will achieve 100% of its business unit financial performance target in each of the three fiscal years described above, resulting in a payment of 75% of the maximum contingent consideration amount described in Note 1. During the fiscal year ended March 31, 2013, the business unit financial performance target was not achieved, therefore no amount was paid. As of March 31, 2013, the remaining amount of contingent consideration arrangements, the range of outcomes and the assumptions used to develop the estimate had not changed.
The Company’s cash and cash equivalents, accounts receivable, unbilled revenue and accounts payable and accrued expenses are financial instruments and are recorded at cost in the consolidated balance sheets. The estimated fair values of these financial instruments approximate their carrying amounts because of their short-term nature. The carrying amount of accounts receivable, long-term and notes receivable approximates fair value based on the discounted cash flows of that instrument using current assumptions at the balance sheet date. At March 31, 2012,2013, the estimated fair value of the Company’s fixed rate debt was $106,246 compared to aapproximated its carrying amount of $93,549.$70,151. At March 31, 20122013 the estimated fair value of the Company’s variable rate debt was $170,420,$171,597, compared to a carrying amount of $170,990.$167,758. The fair value of fixed rate and variable rate debt is estimated by management based upon current interest rates available to the Company at the respective balance sheet date for arrangements with similar terms and conditions. Based on borrowing rates currently available to the Company for loans with similar terms, the carrying value of notes payable and capital lease obligations approximates fair value.
CONCENTRATIONS OF CREDIT RISK
The Company’s customer base is primarily throughout the United States. The Company routinely assesses the financial strength of its customers and the status of its accounts receivable and, based upon factors surrounding the credit risk, establishes an allowance, if required, for uncollectible accounts and, as a result, believes that its accounts receivable credit risk exposure beyond such allowance is limited.
The Company determines its allowance by considering a number of factors, including the length of time such receivables are past due, the Company’s previous loss history, and the customer’s current ability to pay its obligation to the Company. The Company writes off receivables when all collection efforts have been exhausted.
CONCENTRATIONS OF SUPPLIER RISK
The Company currently purchases Systems from a limited number of suppliers. The inability to obtain certain components on a timely basis would limit the Company’s ability to complete installation of such Systems in a timely manner and could affect the amount of future revenues.
IMPAIRMENT OF LONG-LIVED AND FINITE-LIVED ASSETS
The Company reviews the recoverability of its long-lived assets and finite-lived intangible assets, when events or conditions exist that indicate a possible impairment exists. The assessment for recoverability is based primarily on the Company’s ability to recover the carrying value of its long-lived and finite-lived assets from expected future undiscounted net cash flows. If the total of expected future undiscounted net cash flows is less than the total carrying value of the assets the asset is deemed not to be recoverable and possibly impaired. The Company then estimates the fair value of the asset to determine whether an impairment loss should be recognized. An impairment loss will be recognized if the difference between the fair value and the carrying value of the asset exceeds its fair value. Fair value is determined by computing the expected future discountedundiscounted cash flows. During the fiscal years ended March 31, 20122013 and 20112012, no impairment charge from continuing operations for long-lived assets or finite-lived assets was recorded.
GOODWILL AND INDEFINITE-LIVED INTANGIBLE ASSETS
Goodwill is the excess of the purchase price paid over the fair value of the net assets of an acquired business. Goodwill and intangible assets with indefinite lives are not amortized; rather, they are tested for impairment on at least an annual basis.
The Company’s process of evaluating goodwill for impairment involves the determination of fair value of its goodwill reporting units: Software and CEG. The Company conducts its annual goodwill impairment analysis during the fourth quarter of each fiscal year, measured as of March 31, unless triggering events occur which require goodwill to be tested at another date.
Inherent in the fair value determination for each reporting unit are certain judgments and estimates relating to future cash flows, including management’s interpretation of current economic indicators and market conditions, and assumptions about the Company’s strategic plans with regard to its operations. To the extent additional information arises, market conditions change or the Company’s strategies change, it is possible that the conclusion regarding whether the Company’s remaining goodwill is impaired could change and result in future goodwill impairment charges that will have a material effect on the Company’s consolidated financial position or results of operations.
The Company applies the Financial Accounting Standards Board's ("FASB") guidance when testing goodwill for impairment which permits the Company to make a qualitative assessment of whether goodwill is impaired, or opt to bypass the qualitative assessment, and proceed directly to performing the first step of the two-step impairment test. If the Company performs a qualitative assessment and concludes it is more likely than not that the fair value of a reporting unit exceeds its carrying value, goodwill is not considered impaired and the two-step impairment test is unnecessary. However, if the Company concludes otherwise, it is then required to perform the first step of the two-step impairment test.
The Company has the unconditional option to bypass the qualitative assessment for any reporting unit and proceed directly to performing the first step of the goodwill impairment test. The Company may resume performing the qualitative assessment in any subsequent period.
For reporting units where we decide to perform a qualitative assessment, our management assesses and makes judgments regarding a variety of factors which potentially impact the fair value of a reporting unit, including general economic conditions, industry and market-specific conditions, customer behavior, cost factors, our financial performance and trends, our strategies and business plans, capital requirements, management and personnel issues, and our stock price, among others. Management
then considers the totality of these and other factors, placing more weight on the events and circumstances that are judged to most affect a reporting unit's fair value or the carrying amount of its net assets, to reach a qualitative conclusion regarding whether it is more likely than not that the fair value of a reporting unit exceeds its carrying amount.
For reporting units where we decide to perform a quantitative testing approach in order to test goodwill, a determination of the fair value of our reporting units is required and is based, among other things, on estimates of future operating performance of the reporting unit and/or the component of the entity being valued. The Company is required to complete an impairment test for goodwill and record any resulting impairment losses at least on an annual basis or more often if warranted by events or changes in circumstances indicating that the carrying value may exceed fair value, (“also known as impairment indicators”).indicators. This impairment test includes the projection and discounting of cash flows, analysis of our market factors impacting the businesses the Company operates and estimating the fair values of tangible and intangible assets and liabilities. Estimating future cash flows and determining their present values are based upon, among other things, certain assumptions about expected future operating performance and appropriate discount rates determined by management.
The discounted cash flow methodology establishes fair value by estimating the present value of the projected future cash flows to be generated from the reporting unit. The discount rate applied to the projected future cash flows to arrive at the present value is intended to reflect all risks of ownership and the associated risks of realizing the stream of projected future cash flows. The discounted cash flow methodology uses our projections of financial performance for a five-year period. The most significant assumptions used in the discounted cash flow methodology are the discount rate the terminal value and expected future revenues and gross margins, which vary among reporting units. The market participant based WACCweighted average cost of capital for each unit gives consideration to factors including, but not limited to, capital structure, historic and projected financial performance, and size.
The market multiple methodology establishes fair value by comparing the reporting unit to other companies that are similar, from an operational or industry standpoint and considers the risk characteristics in order to determine the risk profile relative to the comparable companies as a group. The most significant assumptions are the market multiplies and the control premium. The Company has elected not to apply a control premium to the fair value conclusions for the purposes of impairment testing.
The Company then assigns a weighting to the discounted cash flows and market multiple methodologies to derive the fair value of the reporting unit. The income approach is weighted 70% and the market approach is weighted 30% to derive the fair value of the reporting unit. The weightings are evaluated each time a goodwill impairment assessment is performed and give consideration to the relative reliability of each approach at that time.
In the fourth quarter of the fiscal year ended March 31, 2012, in conjunction with management's annual testing of goodwill, the Company early adopted new accounting guidance which permits a qualitative assessment of goodwill and performed such assessment for its Software and CEG reporting units.
During the annual testing of goodwill for the fiscal year ended March 31, 2012,2013, management performed the qualitativequantitative assessment for its Software and CEG reporting units. The qualitative assessment includedIn determining fair value, we make various assumptions, including our expectations of future cash flows based on projections or forecasts derived from our analysis of business prospects, economic or market trends and any regulatory changes that may occur. We estimate the review of changesfair value of the following: recent financial performance, financial forecasts,reporting unit using a net present value methodology, which is dependent on significant assumptions related to estimated future discounted cash flows, discount rates carrying amount, market values of comparable companies, industry conditions, and general economic conditions. Furthermore, management consideredtax rates. Our assumptions included growth rates in adjusted EBITDA that are derived from the results of the most recent two-step quantitative impairment test completed for a reporting unit (in this instanceCompany's budget for the Company'sfiscal year ended March 31, 2014 with flat growth rates of approximately 2% and 3% for Software and CEG, reporting units, as ofrespectively, for the fiscal years thereafter through the fiscal year ending March 31, 2011)2018. Further, we assumed a market-based weighted average cost of capital of 10% and 20% for Software and CEG, respectively, to discount cash flows and a blended federal and state tax rate of 40%. Management concluded
We determined that it was more likely than not that the estimated fair value of the Software andreporting unit exceeded its carrying value, inclusive of goodwill of $4,197, by over 100%. We determined that the fair value of the CEG reporting unit's equity exceedsunit exceeded its carrying value, inclusive of goodwill of $8,542, by over 100%. Thus, a significant decrease in fair value would be required before the respectivegoodwill balance at these reporting units would have a carrying value in excess of the fair value. As such, no further analysis of the Software and CEG reporting units was required and no goodwill impairment was recorded.recorded for the fiscal year ended March 31, 2013. There is, however, a significant risk of future impairment if management's expectations of future cash flows are not achieved.
Information related to the goodwill allocated to the Company’s continuing operationsCompany's reportable segments is detailed below: | | | | | | | | | | | | | | | | | | | | | | | | | | | | Phase I | | Phase II | | Services | | Content & Entertainment | | Corporate | | Consolidated | As of March 31, 2012 | | $ | — |
| | $ | — |
| | $ | 4,197 |
| | $ | 1,568 |
| | $ | — |
| | $ | 5,765 |
| As of March 31, 2011 | | $ | — |
| | $ | — |
| | $ | 4,197 |
| | $ | 1,568 |
| | $ | — |
| | $ | 5,765 |
|
For the fiscal year ended March 31, 2011, no impairment charge was recorded for goodwill related to the Company's continued operations.
As of March 31, 2012, the Company’s finite-lived intangible assets consisted of customer relationships and agreements, theatre
relationships, covenants not to compete, trade names and trademarks. For the fiscal years ended March 31, 2012 and 2011, no impairment charge was recorded for intangible assets. | | | | | | | | | | | | | | | | | | | | | | | | | | | | Phase I | | Phase II | | Services | | Content & Entertainment | | Corporate | | Consolidated | As of March 31, 2012 | | $ | — |
| | $ | — |
| | $ | 4,197 |
| | $ | 1,568 |
| | $ | — |
| | $ | 5,765 |
| Goodwill resulting from the New Video Acquisition | | — |
| | — |
| | — |
| | 6,974 |
| | — |
| | 6,974 |
| As of March 31, 2013 | | $ | — |
| | $ | — |
| | $ | 4,197 |
| | $ | 8,542 |
| | $ | — |
| | $ | 12,739 |
|
CAPITALIZED SOFTWARE DEVELOPMENT COSTS
Internal Use Software
The Company accounts for internal use software development costs based on three distinct stages. The first stage, the preliminary project stage, includes the conceptual formulation, design and testing of alternatives. The second stage, or the program instruction phase, includes the development of the detailed functional specifications, coding and testing. The final stage, the implementation stage, includes the activities associated with placing a software project into service. All activities included within the preliminary project stage are considered research and development and expensed as incurred. During the program instruction phase, all costs incurred until the software is substantially complete and ready for use, including all necessary testing, are capitalized, Capitalized costs are amortized when the software is ready for its intended use on a straight-line basis over three to five years.
Software to be Sold, Licensed or Otherwise Marketed
Software development costs for software to be sold, licensed or otherwise marketed that are incurred subsequent to establishing technological feasibility, when it is determined that the software can be produced to meet its design specifications, are capitalized until the product is available for general release. Amounts capitalized as software development costs are amortized using the greater of recognized revenues during the period compared to the total estimated revenues to be earned or on a straight-line basis over estimated lives, ranging from three to fivegenerally 5 years, except for deployment software which is for ten years.10 years. The Company reviews capitalized software costs to determine if any impairment exists on a periodic basis. Amortization of capitalized software development costs, included in direct operating costs, for the fiscal yearsended March 31, 20122013 and 20112012 amounted to $7591,165 and $636759, respectively.
REVENUE RECOGNITION
Phase I Deployment and Phase II Deployment
Virtual print fees (“VPFs”) are earned pursuant to contracts with movie studios and distributors, whereby amounts are payable by a studio to Phase 1 DC, CDF I and to Phase 2 DC when movies distributed by the studio are displayed on screens utilizing the Company’s Systems installed in movie theatres. VPFs are earned and payable to Phase 1 DC and CDF I based on a defined fee schedule with a reduced VPF rate year over year until the sixth year (calendar 2011) at which point the VPF rate remains unchanged through the tenth year. One VPF is payable for every digital title displayed per System. The amount of VPF revenue is dependent on the number of movie titles released and displayed using the Systems in any given accounting period. VPF revenue is recognized in the period in which the digital title first plays on a System for general audience viewing in a digitally-equipped movie theatre, as Phase 1 DC’s, CDF I’s and Phase 2 DC’s performance obligations have been substantially met at that time.
Phase 2 DC’s agreements with distributors require the payment of VPFs, according to a defined fee schedule, for ten years from the date each system is installed; however, Phase 2 DC may no longer collect VPFs once “cost recoupment,” as defined in the agreements, is achieved. Cost recoupment will occur once the cumulative VPFs and other cash receipts collected by Phase 2 DC have equaled the total of all cash outflows, including the purchase price of all Systems, all financing costs, all “overhead and ongoing costs”, as defined, and including the Company’s service fees, subject to maximum agreed upon amounts during the three-year rollout period and thereafter, plus a compounded return on any billed but unpaid overhead and ongoing costs, of 15% per year. Further, if cost recoupment occurs before the end of the eighth contract year, a one-time “cost recoupment bonus” is payable by the studios to the Company. Any other cash flows, net of expenses, received by Phase 2 DC following the achievement of cost recoupment are required to be returned to the distributors on a pro-rata basis. At this time, the Company cannot estimate the timing or probability of the achievement of cost recoupment.
Alternative content fees (“ACFs”) are earned pursuant to contracts with movie exhibitors, whereby amounts are payable to Phase 1 DC, CDF I and to Phase 2 DC, generally either a fixed amount or as a percentage of the applicable box office revenue derived from the exhibitor’s showing of content other than feature films,movies, such as concerts and sporting events (typically referred to as “alternative content”). ACF revenue is recognized in the period in which the alternative content first opens for audience viewing.
Revenues are deferred for up front exhibitor contributions and are recognized over the cost recoupment period, which is a period of expected to be ten years.
Services
For software multi-element licensing arrangements that do not require significant production, modification or customization of the licensed software, revenue is recognized for the various elements as follows: revenue for the licensed software element is recognized upon delivery and acceptance of the licensed software product, as that represents the culmination of the earnings process and the Company has no further obligations to the customer, relative to the software license. Revenue earned from consulting
services is recognized upon the performance and completion of these services. Revenue earned from annual software maintenance is recognized ratably over the maintenance term (typically one year).
Revenue is deferred in cases where: (1) a portion or the entire contract amount cannot be recognized as revenue, due to non-delivery or pre-acceptance of licensed software or custom programming, (2) uncompleted implementation of application service provider arrangements (“ASP Service”), or (3) unexpired pro-rata periods of maintenance, minimum ASP Service fees or website subscription fees. As license fees, maintenance fees, minimum ASP Service fees and website subscription fees are often paid in advance, a portion of this revenue is deferred until the contract ends. Such amounts are classified as deferred revenue and are recognized as earned revenue in accordance with the Company’s revenue recognition policies described above.
Exhibitors who will purchasepurchased and own Systems using their own financing in the Phase II Deployment, will paypaid an upfront activation fee that is generally $2$2 thousand per screen to the Company (the “Exhibitor-Buyer Structure”). These upfront activation fees are recognized in the period in which these exhibitor owned Systems are ready for content, as the Company has no further obligations to the customer, and are generally paid quarterly from VPF revenues over approximately one year. Additionally, the Company recognizes activation fee revenue of between $1$1 thousand and $2$2 thousand on Phase 2 DC Systems and for Systems installed by CDF2Holdings upon installation and such fees are generally collected upfront upon installation. The Company will then manage the billing and collection of VPFs and will remit all VPFs collected to the exhibitors, less an administrative fee that will approximate up to 10% of the VPFs collected.
The administrative fee related to the Phase I Deployment approximates 5% of the VPFs collected.collected and an incentive service fee equal to 2.5% of the VPFs earned by Phase 1 DC. This administrative fee is recognized in the period in which the billing of VPFs occurs, as performance obligations have been substantially met at that time.
Content & Entertainment
CEG earns fees for the distribution of content in the home entertainment markets via several distribution channels, including digital, video-on-demand, and physical goods (e.g. DVD and Blu-ray Disc). The fee rate earned by the Company varies depending upon the nature of the agreements with the platform and content providers. Generally, revenues are recognized at the availability date of the content for a subscription digital platform, at the time of shipment for physical goods, or point-of-sale for transactional and video-on-demand services.
CEG also has contracts for the theatrical distribution of third party feature filmsmovies and alternative content. CEG’s distribution fee revenue and CEG's participation in box office receipts is recognized at the time a feature filmmovie and alternative content is viewed. CEG has the right to receive or bill a portion of the theatrical distribution fee in advance of the exhibition date, and therefore such amount is recorded as a receivable at the time of execution, and all related distribution revenue is deferred until the third party feature films’movies’ or alternative content’s theatrical release date.
DIRECT OPERATING COSTS
Direct operating costs consist of facility operating costs such as rent, utilities, real estate taxes, repairs and maintenance, royalty expenses, advertising, insurance and other related expenses, direct personnel costs, subcontractors and amortization of capitalized software development costs.
ADVERTISING
Advertising costs are expensed as incurred and are included in selling, general and administrative expenses. For the fiscal yearsended March 31, 20122013 and 20112012, the Company recorded advertising costs of $873$153 and $711,$321, respectively.
STOCK-BASED COMPENSATION
ForDuring the fiscal yearsended March 31, 20122013 and 20112012, the Company recorded employee and director stock-based compensation from continuing operations expense of $1,9952,279 and $2,1592,832, respectively.
The weighted-average grant-date fair value of options granted during the fiscal yearsended March 31, 20122013 and 20112012 was $1.77$0.88 and $1.45,$1.77, respectively. There were no stock options exercised during the fiscal years yearended March 31, 2013. During the fiscal year ended March 31, 2012, there were exercises of 93,628 and 2011.stock options.
In December 2010, the Company hired a new CEO and issued options to purchase 4,500,000 shares of Class A Common Stock, 1,500,000 of which carry an exercise price of $1.50, $1.50, 2,500,000 of which carry an exercise price of $3.00,$3.00, and 500,000 of which
carry an exercise price of $5.00.$5.00. One-third of the options in each tranche began vesting in December 2011 and will finish in
December 2013 and all of the options have a term of ten (10) years.10 years. These options were issued outside of the Company’s equity incentive plan as an inducement for entering into employment with the Company. The weighted-average grant-date fair value of these options granted was $0.81.$0.81.
The Company estimated the fair value of stock options at the date of each grant using a Black-Scholes option valuation model with the following assumptions: | | | | As of March 31, | | For the Fiscal Year Ended March 31, | Assumptions for Option Grants | | 2012 | | 2011 | | 2013 | | 2012 | Range of risk-free interest rates | | 0.8 – 2.2% |
| | 1.4% – 2.3% |
| | 0.6 - 0.9% |
| | 0.8 - 2.2% |
| Dividend yield | | — |
| | — |
| | — |
| | — |
| Expected life (years) | | 5 |
| | 5 |
| | 5 |
| | 5 |
| Range of expected volatilities | | 76.3% – 78.1% |
| | 77.8% – 78.8% |
| | 74.0 - 76.0% |
| | 76.3 - 78.1% |
|
The risk-free interest rate used in the Black-Scholes option pricing model for options granted under the Company’s stock option plan awards is the historical yield on U.S. Treasury securities with equivalent remaining lives. The Company does not currently anticipate paying any cash dividends on common stock in the foreseeable future. Consequently, an expected dividend yield of zero is used in the Black-Scholes option pricing model. The Company estimates the expected life of options granted under the Company’s stock option plans using both exercise behavior and post-vesting termination behavior, as well as consideration of outstanding options. The Company estimates expected volatility for options granted under the Company’s stock option plans based on a measure of historical volatility in the trading market for the Company’s common stock.
Employee and director stock-based compensation expense including results of from discontinued operations, related to the Company’s stock-based awards was as follows: | | | | | | | | | | For the Fiscal Years Ended March 31, | | 2012 | | 2011 | Direct operating | $ | 58 |
| | $ | 54 |
| Selling, general and administrative | 1,875 |
| | 2,161 |
| Research and development | 116 |
| | 50 |
| | $ | 2,049 |
| | $ | 2,265 |
|
INCOME TAXES
Income taxes have been provided for under the liability method. Deferred tax assets and liabilities are determined based on the difference between the financial statement and the tax basis of assets and liabilities as measured by the enacted rates which will be in effect when the differences reverse. The Company provides a full valuation allowance against net deferred tax assets if, based upon the available evidence, it is more likely than not that the deferred tax asset will not be realized.
The Company recognizes a tax benefit from uncertain positions only if it is more likely than not that the position is sustainable, based solely on its technical merits and consideration of the relevant taxing authorities’ widely understood administrative practices and precedents. The tax benefits recognized from such positions are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon settlement. At March 31, 2012 and 2011, the Company did not recognize any tax benefits from uncertain tax positions. | | | | | | | | | | For the Fiscal Year Ended March 31, | | 2013 | | 2012 | Direct operating | $ | 82 |
| | $ | 58 |
| Selling, general and administrative | 2,054 |
| | 2,658 |
| Research and development | 143 |
| | 116 |
| | $ | 2,279 |
| | $ | 2,832 |
|
NET LOSS PER SHARE
Basic and diluted net loss per common share has been calculated as follows:
| | | Basic and diluted net loss per common share = | Net loss + preferred dividends | | Weighted average number of common stock outstanding during the period |
Shares issued and any shares that are reacquired during the period are weighted for the portion of the period that they are outstanding.
The Company incurred net losses for each of the fiscal yearsended March 31, 20122013 and 20112012 and, therefore, the impact of dilutive potential common shares from outstanding stock options and warrants, restricted stock, and restricted stock units, totaling 20,372,98820,594,108 shares and 23,845,57120,372,988shares as of March 31, 20122013 and 20112012, respectively, were excluded from the computation as it would be anti-dilutive.
RECENT ACCOUNTING PRONOUNCEMENTS
Recently Adopted Standards
In May 2011,July 2012, the FASB issued a new accounting standard update, which amends guidance allowing an entity to first assess qualitative factors to determine whether the existence of events and circumstances indicates that it is more likely than not that the indefinite – lived intangible asset is impaired. This assessment should be used as a basis for determining whether it is necessary to perform the quantitative impairment test. An entity would not be required to calculate the fair value measurement guidance and includes some enhanced disclosure requirements. The most significant change in disclosures is an expansion of the information requiredintangible asset and perform the quantitative test unless the entity determines, based upon its qualitative assessment, that it is more likely than not that
its fair value is less than its carrying value. The update provides further guidance of events and circumstances that an entity should consider in determining whether it is more likely than not that the fair value of an indefinite – lived intangible asset is less than its carrying amount. The update also allows an entity the option to bypass the qualitative assessment for Level 3 measurements based on unobservable inputs. The standardany indefinite-lived intangible asset in any period and proceed directly to performing the quantitative impairment test. An entity will be able to resume performing the qualitative assessment in any subsequent period. This update is effective for fiscal yearsannual and interim periods beginning after DecemberSeptember 15, 2011.2012, with early adoption permitted. The Company will adoptadopted this standard Aprilon October 1, 2012 and does not expect the2012. The adoption of this standard todid not have a material impact on the consolidated financial statements and disclosures.
In June 2011,October 2012, the FASB codifiedissued a new accounting standard update, which aligns the guidance on fair value measurements in the impairment test of unamortized film costs with the guidance on fair value measurements in other instances within GAAP. The amendments in this update eliminate certain requirements related to the presentationan impairment assessment of comprehensive income. The guidance requires entities to present net incomeunamortized film costs and other comprehensive income in a single continuous statement of comprehensive income or in two separate, but consecutive, statements. Theclarify when unamortized film costs should be assessed for impairment. This update does not add any new guidance does not changeto the components that are recognized in net income and the components that are recognized in other comprehensive income. Currently, the Company presents comprehensive income in its statements of equity. The provisions of this guidance areFASB's codification for Entertainment - Films. This update is effective for the Company's impairment assessments performed on or after December 15, 2012. The Company beginning Apriladopted this standard on January 1, 2012 and are required to be applied retroactively.
In September 2011, the FASB codified guidance related to the testing of goodwill for impairment.2013. The guidance provides entities with the option to first assess qualitative factors to determine whether the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, an entity determines the fair value of a reporting unit is not less than its carrying amount, then performing the two-step impairment test is unnecessary. However, if an entity concludes otherwise, then it is required to perform the first step of the two-step impairment test. Entities have the option of bypassing the qualitative analysis in any period and proceeding directly to the two-step impairment test. The provisionsadoption of this guidance are effective forstandard did not have a material impact on the Company April 1, 2012 but are permitted to be adopted earlier.
In the fourth quarter of the fiscal year ended March 31, 2012, in conjunction with management's annual testing of goodwill, the Company early adopted the new accounting guidance.consolidated financial statements and disclosures.
| | 3. | ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS |
USM had contracts with exhibitors to display pre-show advertisements on their screens, in exchange for certain fees paid to the exhibitors. USM then contracted with businesses of various types to place their advertisements in select theatre locations, designed the advertisement, and placed it on-screen for specific periods of time, generally ranging from three to twelve months. The Company determined that this business did not meet its strategic plan and sold USM in September 2011 for $6,000,$6,000, before transaction expenses of $226,$226, and recognized a gain on the sale of $846$846 for the fiscal year ended March 31, 2012.2012. USM was formerly part of the Content & Entertainment segment.
In November 2011, pursuant to an asset purchase agreement, the Company sold to a third party the majority oftheatrical assets of Cinedigm'sthe Company's physical and electronic distribution business and trailer distribution business for $1,000$1,000 before transaction expenses of $277,$277, and recognized a loss on the sale of $4,606$4,606 for the fiscal year ended March 31, 2012. Concurrently on completion of this transaction, the Company classified $200 of net assets of its non-theatrical DMS business which were not sold as part of this transaction as held for sale and classified these assets as discontinued operations which the Company intends to sell within the next twelve months.2012. These DMS non-theatrical assets were written down in value by $800$800 during the fiscal year ended March 31, 2012.2012. DMS was formerly part of the Services segment.
In May 2012, pursuant to an asset purchase agreement, the Company sold to a third party the remaining net assets of its non-theatrical DMS business for $200. The Pavilion Theatre generates movie theatre admission and concession revenues. Movie theatre admission revenues are recognizedCompany did not recognize a gain or loss on the datesale. In connection with the sale and in consideration of sale, asother payments made by the related movie is viewedCompany on that date and the Company's performance obligation is met at that time. Concession revenues consist of food and beverage sales and are also recognized on the date of sale. The Pavilion Theatre, while once a digital cinema test site and showcase for digital cinema technology, is no longer needed in that capacity due to widespread adoptionbehalf of the technology. Management decided to pursue itsbuyer, the Company received a secured promissory note from the third party for $260representing the sale duringproceeds and other amounts advanced by the fourth quarterCompany on behalf of the year ended March 31, 2010third party. The promissory note, which bears interest of 5% per annum, was originally due on October 19, 2012 and classified the Pavilion Theatrehas an outstanding balance of $8 as assets held for sale in the year ended March 31, 2010 and reported the results of Pavilion Theatre as discontinued operation for the year ended March 31, 2010 and all subsequent periods.
During the quarter ended September 30, 2010, the Company experienced a reduction in its estimated sales price of the Pavilion Theatre as well as decline in its operating performance. Accordingly, the Company recorded a goodwill impairment charge of
$1,763. As of March 31, 20112013, there was no goodwill associated with the Pavilion Theatre.
In May 2011, the Company completed the sale of certain assets and liabilities of the Pavilion Theatre for $150 and from that point forward, it. The promissory note will not be operated by the Company. Based on the final sales price, the Company recognized a long-lived asset impairment charge of $730 in the fourth quarter of the fiscal year ended March 31, 2011. In addition, the Company recognized a gain on disposal of $64.
In addition, assets held for sale and discontinued operations includes Managed Services and Access Digital Server Assets. In August 2010, the Company sold the stock of Managed Services and the Access Digital Server Assetssatisfied in exchange for $268 in cash payments and $1,150 in a note receivable under a 46-month service agreement (the "Managed Services Agreement"). The note receivable will be repaid through service credits pursuant to the Managed Services Agreement under which the buyer will continue to perform certain information technology related services for the Company. The Access Digital Server Assets currently host the Company's websites, and provide networking and other information technology services to the Company. If there is an event of defaultprovided by the buyer or if the Managed Services Agreement is terminated pursuant to its terms, the buyer would be required to pay all of the then outstanding (unused) service credits in cash, with immediate acceleration. The results of the Other segment have been reported in discontinued operation for the fiscal year endedthird party through MarchDecember 31, 20112013.
With the sale of the remaining net assets of its non-theatrical DMS business, there are no assets or liabilities held for sale as of March 31, 2013. The assets and liabilities held for sale as of March 31, 2012were comprised of the following: | | | | | | | | | | As of March 31, | | 2012 | | 2011 | Accounts receivable, net and notes receivable | $ | 14 |
| | $ | 6,759 |
| Prepaid expenses and other current assets | — |
| | 529 |
| Other assets | — |
| | 954 |
| Capitalized software costs, net | — |
| | 405 |
| Property and equipment, net | 200 |
| | 12,237 |
| Goodwill and intangible assets, net | — |
| | 4,286 |
| Assets held for sale | $ | 214 |
| | $ | 25,170 |
| Accounts payable and accrued expenses | $ | 75 |
| | $ | 3,165 |
| Notes payable | — |
| | 142 |
| Capital leases | — |
| | 5,625 |
| Deferred revenue and other | — |
| | 3,632 |
| Liabilities as part of assets held for sale | $ | 75 |
| | $ | 12,564 |
|
At March 31, 2012, the assets and liabilities held for sale are comprised entirely of the assets and liabilities of DMS.
Certain assets and liabilities of the Pavilion Theatre were sold in May 2011. The Company has remained the primary obligator on the Pavilion capital lease and therefore, the capital lease obligation and related assets under the capital lease will remain with the Company. | | | | | | | | As of March 31, 2012 | Accounts receivable, net and notes receivable | | $ | 14 |
| Property and equipment, net | | 200 |
| Assets held for sale | | $ | 214 |
| Accounts payable and accrued expenses | | $ | 75 |
| Liabilities as part of assets held for sale | | $ | 75 |
|
The resultsFor the fiscal year ended March 31, 2013, the loss from discontinued operations is comprised of DMS. There is no tax provision or benefit related to any of the Pavilion Theatre,discontinued operations. For the fiscal year ended March 31, 2012, the loss from discontinued operations is comprised of USM, DMS Managed Services and the Access Digital Server Assets have been reported as discontinued operations for all periods presented.Pavilion Theatre. The loss from discontinued operations was as follows:
| | | | | | | | | | For the Fiscal Year Ended March 31, | | 2013 | | 2012 | Revenues | $ | 59 |
| | $ | 11,484 |
| Costs and Expenses: | | | | Direct operating (exclusive of depreciation and amortization shown below) | 164 |
| | 8,187 |
| Selling, general and administrative | 195 |
| | 4,494 |
| Provision for doubtful accounts | 184 |
| | 312 |
| Research and development | — |
| | 6 |
| Impairment of assets | — |
| | 800 |
| Depreciation of property and equipment | — |
| | 1,957 |
| Amortization of intangible assets | — |
| | 912 |
| Total operating expenses | 543 |
| | 16,668 |
| Loss from operations | (484 | ) | | (5,184 | ) | Interest expense | — |
| | (185 | ) | Other expense, net | — |
| | (12 | ) | Loss from discontinued operations | $ | (484 | ) | | $ | (5,381 | ) |
| | | | | | | | | | For the Fiscal Years Ended March 31, | | 2012 | | 2011 | Revenues | $ | 11,484 |
| | $ | 26,737 |
| Costs and Expenses: | | | | Direct operating (exclusive of depreciation and amortization shown below) | 8,187 |
| | 18,384 |
| Selling, general and administrative | 4,494 |
| | 7,181 |
| Provision for doubtful accounts | 312 |
| | 483 |
| Research and development | 6 |
| | 34 |
| Depreciation of property and equipment | 1,957 |
| | 2,570 |
| Loss on disposal of assets | — |
| | 120 |
| Amortization of intangible assets | 912 |
| | 2,558 |
| Impairment of long-lived assets | 800 |
| | 730 |
| Impairment of goodwill | — |
| | 1,763 |
| Total operating expenses | 16,668 |
| | 33,823 |
| Loss from operations | (5,184 | ) | | (7,086 | ) | Interest expense | (185 | ) | | (1,036 | ) | Other expense, net | (12 | ) | | (115 | ) | Loss from discontinued operations | $ | (5,381 | ) | | $ | (8,237 | ) |
Note: Included in total operating expenses from discontinued operations for the fiscal years ended March 31, 2012 and 2011 was employee stock-based compensation expense of $54 and $106, respectively.
| | 4. | CONSOLIDATED BALANCE SHEET COMPONENTS |
ACCOUNTS RECEIVABLE
Accounts receivable, net consisted of the followingfollowing: | | | As of March 31, | As of March 31, | | 2012 | | 2011 | 2013 | | 2012 | Trade receivables | $ | 24,759 |
| | $ | 13,176 |
| $ | 32,394 |
| | $ | 24,759 |
| Allowance for doubtful accounts | (257 | ) | | (73 | ) | (699 | ) | | (257 | ) | Total accounts receivable, net | $ | 24,502 |
| | $ | 13,103 |
| $ | 31,695 |
| | $ | 24,502 |
|
PREPAID AND OTHER CURRENT ASSETS
Prepaid and other current assets consisted of the following: | | | | | | | | | | As of March 31, | | 2013 | | 2012 | Non-trade accounts receivable | $ | 3,079 |
| | $ | 234 |
| Prepaid royalties | 2,097 |
| | — |
| Prepaid insurance | 196 |
| | 112 |
| Prepaid inventory | 127 |
| | — |
| Other prepaid expenses | 602 |
| | 775 |
| Total prepaid and other current assets | $ | 6,101 |
| | $ | 1,121 |
|
PROPERTY AND EQUIPMENT
Property and equipment, net was comprisedconsisted of the following: | | | As of March 31, | As of March 31, | | 2012 | | 2011 | 2013 | | 2012 | Leasehold improvements | $ | 533 |
| | $ | 418 |
| $ | 1,108 |
| | $ | 533 |
| Computer equipment and software | 7,754 |
| | 1,541 |
| 7,612 |
| | 7,754 |
| Digital cinema projection systems | 355,664 |
| | 339,650 |
| 360,651 |
| | 355,664 |
| Machinery and equipment | 191 |
| | 51 |
| 592 |
| | 191 |
| Furniture and fixtures | 342 |
| | 317 |
| 556 |
| | 342 |
| | 364,484 |
| | 341,977 |
| 370,519 |
| | 364,484 |
| Less - accumulated depreciation and amortization | (163,510 | ) | | (125,415 | ) | (200,008 | ) | | (163,510 | ) | Total property and equipment, net | $ | 200,974 |
| | $ | 216,562 |
| $ | 170,511 |
| | $ | 200,974 |
|
For the fiscal years ended March 31, 20122013 and 2011,2012, total depreciation and amortization of property and equipment amounted to $35,86536,498 and $31,91635,865, respectively. For the fiscal years ended March 31, 20122013 and 2011,2012, the amortization of the Company’s capital leases, and included in depreciation and amortization of property and equipment, amounted to $342239 and $12342, respectively.
INTANGIBLE ASSETS
Intangible assets, net consisted of the following:
| | | | | | | | | | | | | | | | | As of March 31, 2013 | | Gross Carrying Amount | | Accumulated Amortization | | Net Amount | | Useful Life (years) | Trademarks | $ | 168 |
| | $ | (110 | ) | | $ | 58 |
| | 3 |
| Corporate trade names | 279 |
| | (272 | ) | | 7 |
| | 2-10 |
| Customer relationships and contracts | 11,279 |
| | (2,199 | ) | | 9,080 |
| | 3-15 |
| Theatre relationships | 550 |
| | (206 | ) | | 344 |
| | 10-12 |
| Covenants not to compete | 2,121 |
| | (1,968 | ) | | 153 |
| | 2-5 |
| Content library | 2,769 |
| | (508 | ) | | 2,261 |
| | 5 |
| Favorable lease agreement | 1,193 |
| | (248 | ) | | 945 |
| | 4 |
| | $ | 18,359 |
| | $ | (5,511 | ) | | $ | 12,848 |
| | |
|
| | | | | | | | | | | | | | | | | As of March 31, 2012 | | Gross Carrying Amount | | Accumulated Amortization | | Net Amount | | Useful Life (years) | Trademarks | $ | 136 |
| | $ | (79 | ) | | $ | 57 |
| | 3 |
| Corporate trade names | 279 |
| | (260 | ) | | 19 |
| | 2-10 |
| Customer relationships and contracts | 1,608 |
| | (1,608 | ) | | — |
| | 3-5 |
| Theatre relationships | 550 |
| | (160 | ) | | 390 |
| | 10-12 |
| Covenants not to compete | 1,839 |
| | (1,839 | ) | | — |
| | 3-5 |
| | $ | 4,412 |
| | $ | (3,946 | ) | | $ | 466 |
| | |
|
| | | | | | | | | | | | | | | | | As of March 31, 2011 | | Gross Carrying Amount | | Accumulated Amortization | | Net Amount | | Useful Life (years) | Trademarks | $ | 72 |
| | $ | (58 | ) | | $ | 14 |
| | 3 |
| Corporate trade names | 279 |
| | (224 | ) | | 55 |
| | 2-10 |
| Customer relationships and contracts | 1,608 |
| | (1,443 | ) | | 165 |
| | 3-5 |
| Theatre relationships | 550 |
| | (125 | ) | | 425 |
| | 10-12 |
| Covenants not to compete | 1,839 |
| | (1,801 | ) | | 38 |
| | 3-5 |
| | $ | 4,348 |
| | $ | (3,651 | ) | | $ | 697 |
| | |
|
For the fiscal years ended March 31, 20122013 and 20112012, amortization expense amounted to $294$1,565 and $333,$294, respectively. The Company did not record any impairment of intangible assets during the fiscal years ended March 31, 20122013 and 20112012.
Amortization expense on intangible assets for the next five fiscal years is estimated as follows: | | For the fiscal years ending March 31, | 2013 | $ | 106 |
| | 2014 | $ | 85 |
| $ | 1,689 |
| 2015 | $ | 54 |
| $ | 1,551 |
| 2016 | $ | 54 |
| $ | 1,524 |
| 2017 | $ | 54 |
| $ | 1,358 |
| 2018 | | $ | 894 |
|
CAPITALIZED SOFTWARE COSTS, NET
Capitalized software costs, net consisted of the following: | | | As of March 31, | As of March 31, | | 2012 | | 2011 | 2013 | | 2012 | Capitalized software | $ | 10,573 |
| | $ | 7,800 |
| $ | 13,665 |
| | $ | 10,573 |
| Less - accumulated amortization | (5,417 | ) | | (4,438 | ) | (6,582 | ) | | (5,417 | ) | Total capitalized software costs, net | $ | 5,156 |
| | $ | 3,362 |
| $ | 7,083 |
| | $ | 5,156 |
|
For the years ended March 31, 20122013 and 20112012, amortization of capitalized software costs, which is included in direct operating costs, amounted to $7591,165 and $636759, respectively.
ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consisted of the following: | | | As of March 31, | As of March 31, | | 2012 | | 2011 | 2013 | | 2012 | Accounts payable | $ | 15,658 |
| | $ | 4,877 |
| $ | 18,289 |
| | $ | 15,658 |
| Amounts due to customers/producers | | 14,452 |
| | — |
| Accrued compensation and benefits | 2,244 |
| | 1,342 |
| 1,485 |
| | 2,244 |
| Accrued taxes payable | 170 |
| | 167 |
| 258 |
| | 170 |
| Interest payable | 317 |
| | 82 |
| 987 |
| | 317 |
| Accrued restructuring and transition expenses | 953 |
| | — |
| — |
| | 953 |
| Accrued other expenses | 1,512 |
| | 1,157 |
| 4,849 |
| | 1,512 |
| Total accounts payable and accrued expenses | $ | 20,854 |
| | $ | 7,625 |
| $ | 40,320 |
| | $ | 20,854 |
|
Notes receivable consisted of the following: | | | | As of March 31, 2012 | | As of March 31, 2011 | | As of March 31, 2013 | | As of March 31, 2012 | Note Receivable (as defined below) | | Current Portion | | Long Term Portion | | Current Portion | | Long Term Portion | | Current Portion | | Long Term Portion | | Current Portion | | Long Term Portion | Exhibitor Install Notes | | $ | 170 |
| | $ | 465 |
| | $ | 107 |
| | $ | 608 |
| | $ | 41 |
| | $ | 130 |
| | $ | 170 |
| | $ | 465 |
| Managed Services Note | | 298 |
| | — |
| | 331 |
| | 688 |
| | 282 |
| | — |
| | 298 |
| | — |
| Other | | 30 |
| | — |
| | — |
| | — |
| | 8 |
| | — |
| | 30 |
| | — |
| | | $ | 498 |
| | $ | 465 |
| | $ | 438 |
| | $ | 1,296 |
| | $ | 331 |
| | $ | 130 |
| | $ | 498 |
| | $ | 465 |
|
In connection with Phase 1 DC’s Phase I Deployment, the Company agreed to provide financing to certain motion picture exhibitorstheatres upon the billing to the motion picture exhibitors by Christie for the installation costs associated with the placement of Systems in movie theatres. In April 2006, certain motion picture exhibitors agreed to issue to the Company two8% notes receivable for an aggregate of $1,287$1,287 (the “Exhibitor Install Notes”). One of the 8% notes was subsequently paid off. Under the Exhibitor Install Notes, the motion picture exhibitors are required to make monthly interest only payments through October 2007 and quarterly principal and interest
payments thereafter through August 2009 and August 2017, respectively. As of March 31, 20122013 and 20112012, the outstanding balancebalances of the Exhibitor Install Notes was $635were $171 and $715635, respectively.
In August 2010, in connection with the sale of Core Technology Services, Inc. ("Managed ServicesServices") and the Access Digital Server Assets the Company entered into a $1,150$1,150 note receivable (the "Managed Services Note") as part of the purchase price. The Managed Services Note is being repaid through service credits applied against the Managed Services Note under the Managed Services Agreement. As of March 31, 20122013 and 20112012, the outstanding balance of the Managed Services Note was $298$282 and $1,019298, respectively.
6. INVESTMENT IN NON-CONSOLIDATED ENTITY Investment in CDF2 Holdings LLC DuringAs discussed in Note 2, Holdings, a subsidiary of Phase 2 DC, which is wholly owned by the fiscal quarter ended December 31, 2011, the Company, made a $2,000 equity investment in CDF2 Holdings, LLC, which was formed and financed by third party debt and an equipment lease investor, along with both movie theatre exhibitors and digital equipment suppliers, to fund the purchase by and deployment of digital projection systems to movie theatre exhibitors. CDF2 Holdings, LLC (“Holdings”) and its wholly owned subsidiary,limited liability company, Cinedigm Digital Funding 2, LLC, (“Funding” and, together withwere created for the purpose of capitalizing on the conversion of the exhibition industry from film to digital technology. Holdings “CDF2”) have entered into variousassists customers in procuring the necessary equipment in the conversion of their Systems by providing the necessary financing, agreements for commitments of up to approximately $125,000 to purchase and deploy up to 2,300 digital projection systems to movie theatre auditoriums across the United States. CDF2, together with Access Digital Cinema Phase 2, Corp. ("ADCP 2"), a wholly-owned subsidiary of Cinedigm and the direct parent of Holdings, has also entered into contracts with film studio distributors for payment of virtual print fees and alternative content fees for digital content shown on these digital projection systems as well as a management services agreement with the Company for administrative services related to theequipment, installation and management of the contracts related to these digital projection systems and digital deployment agreements over a 10 year period commencing as of October 18, 2011. ADCP 2 has pledged all of the outstanding membership interests ofongoing services. Holdings and Holdings has pledged all of the outstanding membership interests of Funding and has granted a security interest in all of its equipment, inventory and general intangibles, and Funding has pledged all of its assets to Société Générale, New York Branch, as collateral agent, in support of certain of the financing agreements.
While the Company indirectly owns 100% of the common equity of CDF2, which is a VIE, itas defined in ASC 810, indirectly wholly owned by the Company. ASC 810 requires the consolidation of VIEs by an entity that has a controlling financial interest in the VIE which entity is thereby defined as the primary beneficiary of the VIE. To be a primary beneficiary, an entity must have the power to direct the activities of a VIE that most significantly impact the VIE's economic performance, among other factors. Although Holdings is indirectly wholly owned by the Company, a third party, which also has a variable interest in Holdings, along with an independent third party manager and the Company must mutually approve all business activities and transactions that significantly impact Holdings' economic performance. The Company has thus assessed its variable interests in Holdings and determined that it is not the primary beneficiary of CDF2 in accordance with ASC Topic 810,Holdings and it is accountingtherefore accounts for its investment in CDF2Holdings under the equity method of accounting (see Note 2). accounting. In completing our assessment, the Company identified the activities that it considers most significant to the economic performance of Holdings and determined that we do not have the power to direct those activities. As a result, Holdings' financial position and results of operations are not consolidated in the financial position and results of operations of the Company.
The Company's netmaximum exposure to loss as it relates to Holdings as of March 31, 2013 and 2012 includes:
The investment in CDF2 is reflected as “Investment in non-consolidated entity, net" inthe equity of Holdings of $1,812 and $1,490, respectively; and Accounts receivable due from Holdings for service fees under its master service agreement of $396 and $668, respectively, included within accounts receivable, net on the accompanying consolidated balance sheets.
During the fiscal years ended March 31, 2013 and 2012, the Company received $1,597 and $458 in aggregate revenues through digital cinema servicing fees from Holdings, respectively, included in revenues on the accompanying consolidated statements of operations.
The changes in the carrying amount of our investment in CDF2Holdings for the fiscal year ended March 31, 20122013 are as follows:
| | Balance as of March 31, 2011 | | $ | — |
| | Balance at March 31, 2011 | | | $ | — |
| Equity contributions | | 2,000 |
| | 2,000 |
| Equity in loss of CDF2 | | (510 | ) | | Equity in loss of Holdings | | | (510 | ) | Balance at March 31, 2012 | | $ | 1,490 |
| | 1,490 |
| Equity in income of Holdings | | | 322 |
| Balance at March 31, 2013 | | | $ | 1,812 |
|
Notes payable consisted of the following: | | | | As of March 31, 2012 | | As of March 31, 2011 | | As of March 31, 2013 | | As of March 31, 2012 | Notes Payable | | Current Portion | | Long Term Portion | | Current Portion | | Long Term Portion | | Current Portion | | Long Term Portion | | Current Portion | | Long Term Portion | 2013 Term Loans, net of debt discount | | | $ | 26,250 |
| | $ | 96,207 |
| | $ | — |
| | $ | — |
| 2013 Prospect Loan Agreement | | | — |
| | 70,151 |
| | — |
| | — |
| 2010 Term Loans, net of debt discount | | $ | 24,151 |
| | $ | 93,399 |
| | $ | 24,151 |
| | $ | 123,262 |
| | — |
| | — |
| | 24,151 |
| | 93,399 |
| KBC Facilities | | 11,339 |
| | 40,929 |
| | 4,191 |
| | 39,705 |
| | 8,059 |
| | 36,205 |
| | 11,339 |
| | 40,929 |
| P2 Vendor Note | | 94 |
| | 623 |
| | 72 |
| | 649 |
| | 74 |
| | 569 |
| | 94 |
| | 623 |
| P2 Exhibitor Notes | | 60 |
| | 394 |
| | 69 |
| | 455 |
| | 64 |
| | 330 |
| | 60 |
| | 394 |
| Total non-recourse notes payable | | $ | 35,644 |
| | $ | 135,345 |
| | $ | 28,483 |
| | $ | 164,071 |
| | $ | 34,447 |
| | $ | 203,462 |
| | $ | 35,644 |
| | $ | 135,345 |
| | | | | | | | | | | | | | | | | | 2010 Note, net of debt discount | | $ | — |
| | $ | 87,354 |
| | $ | — |
| | $ | 78,169 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 87,354 |
| Total recourse notes payable | | $ | — |
| | $ | 87,354 |
| | $ | — |
| | $ | 78,169 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 87,354 |
| Total notes payable | | $ | 35,644 |
| | $ | 222,699 |
| | $ | 28,483 |
| | $ | 242,240 |
| | $ | 34,447 |
| | $ | 203,462 |
| | $ | 35,644 |
| | $ | 222,699 |
|
Non-recourse debt is generally defined as debt whereby the lenders’ sole recourse with respect to defaults by the Company is limited to the value of the asset collateralized by the debt. The Vendor Note and the GE Credit Facility2013 Term Loans are not guaranteed by the Company or its other subsidiaries, other than Phase 1 DC. The 2013 Prospect Loan Agreement is not guaranteed by the Company or its other subsidiaries, other than Phase 1 DC and Phase 2 DC. The KBC Facility,Facilities, the P2 Vendor Note and the P2 Exhibitor Notes are not guaranteed by the Company or its other subsidiaries, other than Phase 2 DC.
In May 2010, CDF I, an indirectly wholly-owned, special purpose, non-recourse subsidiary of the Company, formed in April 2010, entered into a definitive credit agreement (the “2010 Credit Agreement”) with Société Générale, New York Branch (“SocGen”), as co-administrative agent, paying agent for the lenders party thereto and certain other secured parties and subsequently as collateral agent. Pursuant to the 2010 Credit Agreement, CDF I borrowed term loans (the “2010 Term Loans”) in the principal amount of $172,500. These 2010 Term Loans were non-recourse to the Company. Under the 2010 Credit Agreement, each of the 2010 Term Loans bore interest, at the option of CDF I and subject to certain conditions, based on the base rate (generally, the bank prime rate) plus a margin of 2.50% or the Eurodollar rate (subject to a floor of 1.75%), plus a margin of 3.50%.
On February 28, 2013, CDF I entered into an amended and restated credit agreement (the “2013 Credit Agreement”) with Société Générale, New York Branch, as administrative agent and collateral agent for the lenders party thereto and certain other secured parties (the “Collateral Agent”), and the lenders party thereto. The 2013 Credit Agreement amended and restated the 2010 Credit Agreement. The primary changes effected by the Amended and Restated Credit Agreement were (i) changing the aggregate principal amount of the term loans to $130,000, which included an assignment of $5,000 of the principal balance to an affiliate of CDF I, (ii) changing the interest rate (described further below) and (iii) extending the term of the credit facility to February 2018. The proceeds of the term loans ("2013 Term Loans") under the 2013 Credit Agreement were used by CDF I to refinance the 2010 Credit Agreement.
The Company recognized a loss from debt extinguishment on the 2010 Term Loans of $2,996, principally from the write-off of previously deferred debt issuance costs and original issue discount, during the fiscal year ended March 31, 2013.
Under the 2013 Credit Agreement, each of the 2013 Term loans bears interest, at the option of CDF I and subject to certain conditions, based on the base rate (generally, the bank prime rate) or the LIBOR rate set at a minimum of 1.00%, plus a margin of 1.75% (in the case of base rate loans) or, 2.75% (in the case of LIBOR rate loans). All collections and revenues of CDF I are deposited into designated accounts, from which amounts are paid out on a monthly basis to pay certain operating expenses and principal, interest, fees, costs and expenses relating to the 2013 Credit Agreement according to certain designated priorities. On a quarterly basis, if funds remain after the payment of all such amounts, they will be applied to prepay the 2013 Term Loans. The 2013 Term Loans mature and must be paid in full by February 28, 2018. In addition, CDF I may prepay the 2013 Term Loans, in whole or in part, subject to paying certain breakage costs, if applicable, and a 1.00% prepayment premium if a prepayment is made during the first year of the 2013 Term Loans.
The 2013 Credit Agreement also requires each of CDF I’s existing and future direct and indirect domestic subsidiaries (the "Guarantors") to guarantee, under an Amended and Restated Guaranty and Security Agreement dated as of February 28, 2013 by
and among CDF I, the Guarantors and the Collateral Agent (the “Guaranty and Security Agreement”), the obligations under the 2013 Credit Agreement, and all such obligations to be secured by a first priority perfected security interest in all of the collective assets of CDF I and the Guarantors, including real estate owned or leased, and all capital stock or other equity interests in C/AIX, the direct holder of CDF I’s equity, CDF I and CDF I’s subsidiaries. In connection with the 2013 Credit Agreement, AccessDM, a wholly-owned subsidiary of the Company and the direct parent of C/AIX, entered into an amended and restated pledge agreement dated as of February 28, 2013 (the “AccessDM Pledge Agreement”) in favor of the Collateral Agent pursuant to which AccessDM pledged to the Collateral Agent all of the outstanding shares of common stock of C/AIX, and C/AIX entered into an amended and restated pledge agreement dated as of February 28, 2013 (the “C/AIX Pledge Agreement”) in favor of the Collateral Agent pursuant to which C/AIX pledged to the Collateral Agent all of the outstanding membership interests of CDF I. The 2013 Credit Agreement contains customary representations, warranties, affirmative covenants, negative covenants and events of default.
All collections and revenues of CDF I are deposited into designated accounts. These amounts are included in cash and cash equivalents in the consolidated balance sheets and are only available to pay certain operating expenses, principal, interest, fees, costs and expenses relating to both the 2013 Credit Agreement and 2010 Credit Agreement, according to certain designated priorities, which totaled $6,787 and $8,447 as of March 31, 2013 and 2012, respectively. The Company also set up a debt service fund under both the 2013 Credit Agreement and 2010 Credit Agreement for future principal and interest payments, classified as restricted cash of $5,751 as of both March 31, 2013 and 2012.
The Company deferred debt issuance costs of $1,639 associated with the issuance of the 2013 Term Loans. Such costs will be amortized through February 2018.
The balance of the 2010 Term Loans, net of the original issue discount, at March 31, 2013 and March 31, 2012 was as follows: | | | | | | | | | | As of March 31, 2013 | | As of March 31, 2012 | 2010 Term Loans, at issuance | $ | 172,500 |
| | $ | 172,500 |
| Payments to date | (172,500 | ) | | (53,777 | ) | Discount on 2010 Term Loans | — |
| | (1,173 | ) | 2010 Term Loans, net | — |
| | 117,550 |
| Less current portion | — |
| | (24,151 | ) | Total long term portion | $ | — |
| | $ | 93,399 |
|
The balance of the 2013 Term Loans, net of the original issue discount, at March 31, 2013 was as follows: | | | | | | As of March 31, 2013 | 2013 Term Loans, at issuance, net | $ | 125,087 |
| Payments to date | (2,275 | ) | Discount on 2013 Term Loans | (355 | ) | 2013 Term Loans, net | 122,457 |
| Less current portion | (26,250 | ) | Total long term portion | $ | 96,207 |
|
On February 28, 2013, DC Holdings LLC, AccessDM and Phase 2 DC entered into term loan agreement (the “2013 Prospect Loan Agreement”) with Prospect Capital Corporation (“Prospect”), as administrative agent (the “Prospect Administrative Agent”) and collateral agent (the “Prospect Collateral Agent”) for the lenders party thereto, and the other lenders party thereto pursuant to which DC Holdings LLC borrowed $70,000 (the “2013 Prospect Loan”) . The 2013 Prospect Loan will bear interest annually in cash at LIBOR plus 9.00% (with a 2.00% LIBOR floor) and at 2.50% to be accrued as an increase in the aggregate principal amount of the 2013 Prospect Loan until the 2013 Credit Agreement is paid off, at which time all interest will be payable in cash.
The 2013 Prospect Loan matures on March 31, 2021. The 2013 Prospect Loan may be accelerated upon a change in control (as defined in the Term Loan Agreement) or other events of default as set forth therein and would be subject to mandatory acceleration upon an insolvency of DC Holdings LLC. The 2013 Prospect Loan is payable on a voluntary basis after the second anniversary of the initial borrowing in whole but not in part, subject to a prepayment penalty equal to 5.00% of the principal amount prepaid if the 2013 Prospect Loan is prepaid after the second anniversary but prior to the third anniversary of issuance, a prepayment penalty of 4.00% of the principal amount prepaid if the 2013 Prospect Loan is prepaid after such third anniversary but prior to the fourth anniversary of issuance, a prepayment penalty of 3.00% of the principal amount prepaid if the 2013 Prospect Loan is prepaid after such fourth anniversary but prior to the fifth anniversary of issuance, a prepayment penalty of 2.00% of the principal amount
prepaid if the 2013 Prospect Loan is prepaid after such fifth anniversary but prior to the sixth anniversary of issuance, a prepayment penalty of 1.00% of the principal amount prepaid if the 2013 Prospect Loan is prepaid after such sixth anniversary but prior to the seventh anniversary of issuance, and without penalty if the 2013 Prospect Loan is prepaid thereafter, plus cash in an amount equal to the accrued and unpaid interest amount with respect to the principal amount through and including the prepayment date.
In connection with the 2013 Prospect Loan, the Company assigned to DC Holdings LLC its rights to receive servicing fees under the Company’s Phase I and Phase II deployments. Pursuant to a Limited Recourse Pledge Agreement (the “Limited Recourse Pledge”) executed by the Company and a Guaranty, Pledge and Security Agreement (the “Prospect Guaranty and Security Agreement”) among DC Holdings LLC, AccessDM, Phase 2 DC and Prospect, as Prospect Collateral Agent, the Prospect Loan is secured by, among other things, a first priority pledge of the stock of Holdings owned by the Company, the stock of AccessDM owned by DC Holdings LLC and the stock of Phase 2 DC owned by the Company, and guaranteed by AccessDM and Phase 2 DC. The Company provides limited financial support to the 2013 Prospect Loan not to exceed $1,500 per year in the event financial performance does not meet certain defined benchmarks.
The Company deferred debt issuance costs of $4,214 associated with the issuance of the 2013 Prospect Loan. Such costs will be amortized through March 2021.
The 2013 Prospect Loan Agreement contains customary representations, warranties, affirmative covenants, negative covenants and events of default. The balance of the 2013 Prospect Loan Agreement at March 31, 2013 was as follows: | | | | | | As of March 31, 2013 | 2013 Prospect Loan Agreement, at issuance | $ | 70,000 |
| PIK Interest | 151 |
| 2013 Prospect Loan Agreement, net | $ | 70,151 |
| Less current portion | — |
| Total long term portion | $ | 70,151 |
|
In August 2009, the Company entered into a securities purchase agreement (the “Sageview Purchase Agreement”) with an affiliate of Sageview Capital LP (“Sageview” or the “Purchaser”) pursuant to which the Company agreed to issue a Senior Secured Note (the “2009 Note”) in the aggregate principal amount of $75,000$75,000 and warrants (the “Sageview Warrants”) to purchase 16,000,000 shares of its Class A Common Stock (the “2009 Private Placement”). The 2009 Note was later amended and restated on May 6, 2010 (as so amended and restated, the “2010 Note”). The 2010 Note was repaid by the Company from the proceeds of the 2013 Term Loans and the 2010 Note was thereby extinguished. The Company recognized a loss from debt extinguishment of the 2010 Note of $4,909, principally from the write-off of previously deferred debt issuance costs and original issue discount, during the fiscal year ended March 31, 2013. The Company additionally paid a debt prepayment fee to Sageview of $3,725 resulting from the repayment of the 2010 Note prior to its maturity date. The balance of the 2010 Note, net of the discount associated with the issuance of the Sageview Warrants and the interest of 8% per annum on the 2010 Note to be accrued as an increase in the aggregate principal amount of the 2010 Note (“PIK Interest”), as of March 31, 2013 and March 31, 2012 was as follows: | | | | | | | | | | As of March 31, | | 2012 | | 2011 | 2010 Note, at issuance | $ | 75,000 |
| | $ | 75,000 |
| Discount on 2010 Note | (5,066 | ) | | (7,213 | ) | PIK Interest | 17,420 |
| | 10,382 |
| 2010 Note, net | $ | 87,354 |
| | $ | 78,169 |
| Less current portion | — |
| | — |
| Total long term portion | $ | 87,354 |
| | $ | 78,169 |
|
In August 2007, Phase 1 DC obtained $9,600 of vendor financing (the “Vendor Note”) for equipment used in Phase 1 DC’s Phase I Deployment. The Vendor Note bears interest at 11% and may be prepaid without penalty. Interest is due semi-annually commencing February 2008 and is paid by Cinedigm. The balance of the Vendor Note, together with all unpaid interest, is due on the maturity date of August 1, 2016. In May 2010, the Vendor Note was repaid in full from the proceeds of the 2010 Term Loans, as discussed below.
In May 2010, CDF I, an indirectly wholly-owned, special purpose, non-recourse subsidiary of the Company, formed in April 2010, entered into a definitive credit agreement (the “2010 Credit Agreement”) with Société Générale, New York Branch
(“SocGen”), as co-administrative agent and paying agent for the lenders party thereto and certain other secured parties, and General Electric Capital Corporation (“GECC”), as co-administrative agent and collateral agent (the “Collateral Agent”). Pursuant to the 2010 Credit Agreement, CDF I borrowed term loans (the “2010 Term Loans”) in the principal amount of $172,500. These 2010 Term Loans are non-recourse to the Company. The proceeds of the 2010 Term Loans were used by CDF I to pay all costs, fees and expenses relating to the transaction and to pay $157,456 to Phase 1 DC, as part of the consideration for the acquisition by CDF I of all of the assets and liabilities of Phase 1 DC pursuant to a Sale and Contribution Agreement between CDF I and Phase 1 DC. Phase 1 DC acquired all of the outstanding membership interests in CDF I pursuant to this Sale and Contribution Agreement. Phase 1 DC, in turn, extinguished all of its outstanding obligations with respect to the GE Credit Facility and the Vendor Note, and its intercompany obligations owed to the Company. Under the 2010 Credit Agreement, each of the 2010 Term Loans will bear interest, at the option of CDF I and subject to certain conditions, based on the base rate (generally, the bank prime rate) plus a margin of 2.50% or the Eurodollar rate (subject to a floor of 1.75%), plus a margin of 3.50%. All collections and revenues of CDF I are deposited into special blocked accounts. These amounts are included in cash and cash equivalents in the consolidated balance sheets and are only available to pay certain operating expenses, principal, interest, fees, costs and expenses relating to the 2010 Credit Agreement according to certain designated priorities, which totaled $8,447 and $7,492 as of March 31, 2012 and 2011, respectively. On a quarterly basis, if funds remain after the payment of all such amounts, they will be applied to prepay the 2010 Term Loans. After certain conditions are met, CDF I may use up to 50% of the remaining funds to pay dividends or distributions to Phase 1 DC. The Company also set up a debt service fund under the 2010 Credit Agreement for future principal and interest payments, classified as restricted cash of $5,751 as of March 31, 2012 and 2011.
The 2010 Term Loans mature and must be paid in full by April 29, 2016. In addition, CDF I may prepay the 2010 Term Loans, without premium or penalty, in whole or in part, subject to paying certain breakage costs, if applicable. The 2010 Credit Agreement also requires each of CDF I’s existing and future direct and indirect domestic subsidiaries (the "Guarantors") to guarantee, under a Guaranty and Security Agreement dated as of May 6, 2010 by and among CDF I, the Guarantors and the Collateral Agent (the “Guaranty and Security Agreement”), the obligations under the 2010 Credit Agreement, and all such obligations to be secured by a first priority perfected security interest in all of the collective assets of CDF I and the Guarantors, including real estate owned or leased, and all capital stock or other equity interests in Phase 1 DC, CDF I and CDF I’s subsidiaries. In connection with the 2010 Credit Agreement, AccessDM, the direct parent of Phase 1 DC, entered into a pledge agreement dated as of May 6, 2010 in favor of the Collateral Agent (the “ADM Pledge Agreement”) pursuant to which AccessDM pledged to the Collateral Agent all of the outstanding shares of common stock of Phase 1 DC, and Phase 1 DC entered into a pledge agreement dated as of May 6, 2010 in favor of the Collateral Agent (the “Phase 1 DC Pledge Agreement”) pursuant to which Phase 1 DC pledged to the Collateral Agent all of the outstanding membership interests of CDF I. The 2010 Credit Agreement contains customary representations, warranties, affirmative covenants, negative covenants and events of default, as well as conditions to borrowings. The balance of the 2010 Term Loans, net of the original issue discount, was as follows:
| | | | | | | | | | As of March 31, 2012 | | As of March 31, 2011 | 2010 Term Loans, at issuance | $ | 172,500 |
| | $ | 172,500 |
| Payments to date | (53,777 | ) | | (23,626 | ) | Discount on 2010 Term Loans | (1,173 | ) | | (1,461 | ) | 2010 Term Loans, net | 117,550 |
| | 147,413 |
| Less current portion | (24,151 | ) | | (24,151 | ) | Total long term portion | $ | 93,399 |
| | $ | 123,262 |
|
In June 2010, CDF I executed the three separate Interest Rate Swaps with counterparties for a total notional amount of approximately 66.67% of the amounts to be outstanding at June 15, 2011 under the 2010 Term Loans or an initial amount of $100,000. Under the Interest Rate Swaps, CDF I will effectively pay a fixed rate of 2.16%, to guard against CDF I’s exposure to increases in the variable interest rate under the 2010 Term Loans. SocGen arranged the transaction, which took effect commencing June 15, 2011 as required by the 2010 Term Loans and will remain in effect until at least June 15, 2013. As principal repayments of the 2010 Term Loans occur, the notional amount will decrease by a pro rata amount, such that approximately $80,000 of the remaining principal amount will be covered by the Interest Rate Swaps at any time. The Company has not sought hedge accounting and therefore, changes in the value of its Interest Rate Swaps will be recorded in the consolidated statements of operations (see Note 2). | | | | | | | | | | As of March 31, 2013 | | As of March 31, 2012 | 2010 Note, at issuance | $ | 75,000 |
| | $ | 75,000 |
| Discount on 2010 Note | — |
| | (5,066 | ) | PIK Interest | 24,341 |
| | 17,420 |
| Payments to date | (99,341 | ) | | | 2010 Note, net | $ | — |
| | $ | 87,354 |
| Less current portion | — |
| | — |
| Total long term portion | $ | — |
| | $ | 87,354 |
|
CREDIT FACILITIES
In August 2006, Phase 1 DC entered into an agreement with GECC pursuant to which GECC and certain other lenders agreed to provide to Phase 1 DC a $217,000 Senior Secured Multi Draw Term Loan (the “GE Credit Facility”). Proceeds from the GE
Credit Facility were used for the purchase and installation of up to 70% of the aggregate purchase price, including all costs, fees or other expenses associated with the purchase acquisition, receipt, delivery, construction and installation of Systems in connection with Phase 1 DC’s Phase I Deployment and to pay transaction fees and expenses related to the GE Credit Facility, and for certain other specified purposes. The GE Credit Facility was not guaranteed by the Company or its other subsidiaries, other than Phase 1 DC. In May 2010, the GE Credit Facility was extinguished. The write-off of unamortized debt issuance costs of $3,320 and a prepayment penalty of $1,128 resulted in a $4,448 loss on extinguishment of note payable in the consolidated statements of operations.
In April 2008, Phase 1 DC executed an Interest Rate Swap, otherwise known as an “arranged hedge transaction” or "synthetic fixed rate financing" with a counterparty for a notional amount of approximately 90% of the amounts outstanding under the GE Credit Facility or an initial amount of $180,000. Under the Interest Rate Swap, Phase 1 DC will effectively pay a fixed rate of 7.3%, to guard against Phase 1 DC’s exposure to increases in the variable interest rate under the GE Credit Facility. GE Corporate Financial Services arranged the transaction, which took effect commencing August 1, 2008 as required by the GE Credit Facility and will remain in effect until August 2010. As principal repayments of the GE Credit Facility occur, the notional amount will decrease by a pro rata amount, such that approximately 90% of the remaining principal amount will be covered by the Interest Rate Swap at any time. In May 2010, the Interest Rate Swap was settled in cash with the counter party for $888 from the proceeds of the 2010 Term Loans discussed above.
In December 2008, Phase 2 B/AIX, a direct wholly-owned subsidiary of Phase 2 DC and an indirect wholly-owned subsidiary of the Company, enteredbegan entering into amultiple credit facility of up to a maximum of $8,900 with KBC Bank NV (the “KBC Facility #1”)facilities to fund the purchase of Systems from Barco, Inc. (“Barco”), to be installed in movie theatres as part of the Company’s Phase II Deployment. The KBC Facility #1 required interest-only payments at 7.3% per annum through December 31, 2009. TheA summary of the credit facilities is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Outstanding Principal Balance | | Draw as of | Facility1 | | Credit Facility | | Interest Rate1 | | Maturity Date | | As of March 31, 2013 | | As of March 31, 2012 | | March 31, 2013 | 1 |
| | $ | 8,900 |
| | 8.5 | % | | December 2016 | | $ | — |
| | $ | 3,059 |
| | $ | — |
| 2 |
| | 2,890 |
| | 3.75 | % | | December 2017 | | 1,961 |
| | 2,347 |
| | 27 |
| 3 |
| | 22,336 |
| | 3.75 | % | | September 2018 | | 16,752 |
| | 20,221 |
| | 662 |
| 4 |
| | 13,312 |
| | 3.75 | % | | September 2018 | | 10,459 |
| | 12,361 |
| | — |
| 5 |
| | 11,425 |
| | 3.75 | % | | March 2019 | | 9,794 |
| | 11,425 |
| | — |
| 6 |
| | 6,450 |
| | 3.75 | % | | December 2018 | | 5,298 |
| | 2,855 |
| | 3,429 |
| | | $ | 65,313 |
| | | | | | $ | 44,264 |
| | $ | 52,268 |
| | $ | 4,118 |
|
1 For each facility, principal is to be repaid in twenty-eight equal quarterly installments commencing in March 2010 and ending December 31, 2016 (the “Repayment Period”) at aninstallments. 2 The interest rate of 8.5% per annum during the Repayment Period. The KBC Facility #1 may be prepaid at any time without penalty and is not guaranteed by the Company or its other subsidiaries, other than Phasefor facilities 2 DC. During the fiscal year ended March 31, 2012, there was no amount drawn down on the KBC Facility #1. As of March 31, 2012 and 2011, the outstanding principal balance of the KBC Facility #1 was $3,059 and $7,298, respectively.
In February 2010, Phase 2 B/AIX entered into an additional credit facility with KBC Bank NV (the “KBC Facility #2”) to fund the purchase of Systems from Barco, to be installed in movie theatres as part of the Company’s Phase II Deployment. The KBC Facility #2 provides for borrowings of up to a maximum of $2,890 through December 31, 2010 (the “Draw Down Period”) and requires interest-only payments based on the three month London Interbank Offered Rate ("LIBOR") plus 3.75% per annum during the Draw Down Period. For any funds drawn, the principal is to be repaid in twenty-eight equal quarterly installments commencing in March 2011 and ending December 2017 (the “Repayment Period”) at an interest rate based on6 are the three month LIBOR, plus 3.75% per annum during the Repayment Period. The KBC Facility #2 may be prepaid at any time without penalty and is not guaranteed by the Company or its other subsidiaries, other than Phase 2 DC. During the fiscal year ended March 31, 2012, $1,285 has been drawn down on the KBC Facility #2. As of March 31, 2012 and 2011, the outstanding principal balance of the KBC Facility #2 was $2,347 and $1,475, respectively.
In May 2010, Phase 2 B/AIX entered into an additional credit facility with KBC Bank NV (the “KBC Facility #3”) to fund the purchase of Systems from Barco, to be installed in movie theatres as part of the Company’s Phase II Deployment. The KBC Facility #3 provides for borrowings of up to a maximum of $22,336 through December 31, 2010 (the “Draw Down Period”) and requires interest-only payments based on the three month LIBOR plus 3.75% per annum during the Draw Down Period. For any funds drawn, the principal is to be repaid in twenty-eight equal quarterly installments commencing in December 2011 and ending September 2018 (the “Repayment Period”) at an interest rate based on the three month LIBOR plus 3.75% per annum during the Repayment Period. The KBC Facility #3 may be prepaid at any time without penalty and is not guaranteed by the Company or its other subsidiaries, other than Phase 2 DC. During the fiscal year ended March 31, 2012, there was no amount drawn down on the KBC Facility #3. As of March 31, 2012 and 2011, the outstanding principal balance of the KBC Facility #3 was $20,221 and $21,811, respectively.
In May 2010, Phase 2 B/AIX entered into an additional credit facility with KBC Bank NV (the “KBC Facility #4”) to fund the purchase of Systems from Barco, to be installed in movie theatres as part of the Company’s Phase II Deployment. The KBC Facility #4 provides for borrowings of up to a maximum of $13,312 through December 31, 2010 (the “Draw Down Period”) and requires interest-only payments based on the three month LIBOR plus 3.75% per annum during the Draw Down Period. For any funds drawn, the principal is to be repaid in twenty-eight equal quarterly installments commencing in December 2011 and ending September 2018 (the “Repayment Period”) at an interest rate based on the three month LIBOR plus 3.75% per annum during the Repayment Period. The KBC Facility #4 may be prepaid at any time without penalty and is not guaranteed by the Company or its other subsidiaries, other than Phase 2 DC. During the fiscal year ended March 31, 2012, there was no amount drawn down on the KBC Facility #4. As of March 31, 2012 and 2011, the outstanding principal balance
of the KBC Facility #4 was $12,361 and $13,312, respectively.
In May 2011, Phase 2 B/AIX entered into an additional credit facility with KBC Bank NV (the “KBC Facility #5”) to fund the purchase of Systems from Barco, to be installed in movie theatres as part of the Company’s Phase II Deployment. The KBC Facility #5 provides for borrowings of up to a maximum of $11,425 through March 31, 2012 (the “Draw Down Period”) and requires interest-only payments based on the three month LIBOR plus 3.75% per annum during the Draw Down Period. For any funds drawn, the principal is to be repaid in twenty-eight equal quarterly installments commencing in June 2012 and ending March 2019 (the “Repayment Period”) at an interest rate based on the three month LIBOR plus 3.75% per annum during the Repayment Period. The KBC Facility #5 may be prepaid at any time without penalty and is not guaranteed by the Company or its other subsidiaries, other than Phase 2 DC. As of and for the fiscal year ending March 31, 2012, the outstanding principal balance and total draw down amount was $11,425.
In June 2011, Phase 2 B/AIX entered into an additional credit facility with KBC Bank NV (the “KBC Facility #6”) to fund the purchase of Systems from Barco, to be installed in movie theatres as part of the Company’s Phase II Deployment. The KBC Facility #6 provides for borrowings of up to a maximum of $6,450 through December 31, 2011 (the “Draw Down Period”) and requires interest-only payments based on the three month LIBOR plus 3.75% per annum during the Draw Down Period. For any funds drawn, the principal is to be repaid in twenty-eight equal quarterly installments commencing in March 2012 and ending December 2018 (the “Repayment Period”) at an interest rate based on the three month LIBOR plus 3.75% per annum during the Repayment Period. The KBC Facility #6 may be prepaid at any time without penalty and is not guaranteed by the Company or its other subsidiaries, other than Phase 2 DC. During the fiscal year ended March 31, 2012, $3,084 has been drawn down on the KBC Facility #6 and the outstanding principal balance was $2,855.noted above.
At March 31, 20122013, the Company was in compliance with all of its debt covenants.
The aggregate principal repayments on the Company’s notes payable, excluding debt discounts, are scheduled to be as follows: | | For the fiscal years ending March 31, | | | For the fiscal years ending March 31, | 2013 | | $ | 35,644 |
| | 2014 | | 33,237 |
| | $ | 34,447 |
| 2015 | | 146,407 |
| | 33,956 |
| 2016 | | 36,697 |
| | 33,397 |
| 2017 | | 19,732 |
| | 29,465 |
| 2018 | | | 32,740 |
| Thereafter | | 11,891 |
| | 90,022 |
| | | $ | 283,608 |
| | $ | 254,027 |
|
The amount for fiscal 2015 includes $36,446 of PIK Interest on the 2010 Note, of which $19,206 is to be accrued as additional principal from April 2012 through August 2014.
STOCKHOLDERS’ RIGHTS
On August 10, 2009, the Company entered into a tax benefit preservation plan (the "Tax Preservation Plan"), dated August 10, 2009, between the Company and American Stock Transfer & Trust Company, LLC, as rights agent. The Company’s board of directors (the "Board") adopted the Tax Preservation Plan in an effort to protect stockholder value by attempting to protect against a possible limitation on its ability to use net operating loss carryforwards (the "NOLs") to reduce potential future federal income tax obligations.
On August 10, 2009, the Board declared a dividend of one preferred share purchase right (the "Rights") for each outstanding share of the Company’s Class A Common Stock and each outstanding share of the Company’s Class B Common Stock, (the "Class B Common Stock," and together with the Class A Common Stock, the "Common Stock") under the terms of the Tax Preservation Plan. The dividend is payable to the stockholders of record as of the close of business on August 10, 2009. Each Right entitles the registered holder to purchase from the Company one one-thousandth of a share of the Company’s Series B Junior Participating Preferred Stock, par value $0.001 per share, (the "Preferred B Stock") at a price of $6.00, subject to adjustment. The Rights are not exercisable, and would only become exercisable when any person or group has acquired, subject to certain conditions, beneficial ownership of 4.99% or more of the Company’s outstanding shares of Class A Common Stock. Through March 31, 2012, the Company had not record the dividends as no unpermitted 4.99% or more change in the beneficial ownership of the Company’s outstanding shares of Class A Common Stock had occurred.
CAPITAL STOCK
COMMON STOCK
In July 2011,September 2012, the Company entered into a common stock purchase agreement (the “Purchase Agreement”) with certain investors party thereto (the “Investors”) pursuant to whichincreased the Company sold to the Investors an aggregatenumber of 4,338,750 shares of Class A Common Stock authorized for an aggregate purchase price in cashissuance by 30,000,000 shares and redesignated the 13,759,000 unissued shares of $6,942, or $1.60 per share. The proceeds are being used for general working capital purposes and strategic opportunities. The Company also entered into a Registration Rights Agreement with the Investors (the “Registration Rights Agreement“) pursuant to which the Company agreed to register the resale of these shares from time to time in accordance with the terms of the Registration Rights Agreement. The Company filed a registration statement for the resale of these shares on August 3, 2011 and it was declared effective by the SEC on August 16, 2011.
During the fiscal year ended March 31, 2012, the Company issued 50,000Class B Common Stock as shares of Class A Common Stock, with an aggregate valueresulting in a total of $86, to independent third parties for strategic management services related to CEG. In addition to the 50,000118,759,000 authorized shares of Class A Common Stock and 1,241,000 shares of authorized Class B Common Stock of which none remain available for issuance.
On April 26, 2012, the holder of 25,000 shares of the Company's Class B common stock converted all of the Class B shares into 25,000 Class A common stock shares. Accordingly the Company no longer has any Class B common stock outstanding.
In April 2012, the Company issued its strategic management service provider warrants with an exercise7,857,143 shares of Class A common stock at a public offering price of $1.72$1.40 per share, resulting in net proceeds to purchase up to 525,000 sharesthe Company of its Class A Common Stock that vest over 15 months. $10,000, net of costs of $1,121.
PREFERRED STOCK
Cumulative dividends in arrears on the Preferred Stockpreferred stock at March 31, 20122013 and 20112012 was $67were $90 and $13967, respectively.
CINEDIGM’S EQUITY INCENTIVE PLAN
At March 31, 2012, theThe Company’s equity incentive plan (“the Plan”) previously provided for the issuance of up to 7,000,0006,300,000 shares of Class A Common Stock to employees, outside directors and consultants. On April 20,At the Annual Meeting of Stockholders on September 12, 2012 of the Company, the stockholders of the Company approved an amendment to the Plan to increase the total number of shares authorizedof the Company's Class A Common Stock available for issuance under the Plan was reduced to 6,300,000.9,300,000 shares.
Stock Options
Awards under the Plan may be in any of the following forms (or a combination thereof) (i) stock option awards; (ii) stock appreciation rights; (iii) stock or restricted stock or restricted stock units; or (iv) performance awards. The Plan provides for the granting of incentive stock options (“ISOs”) with exercise prices not less than the fair market value of the Company’s Class A Common Stock on the date of grant. ISOs granted to shareholders of more than 10% of the total combined voting power of the Company must have exercise prices of at least 110% of the fair market value of the Company’s Class A Common Stock on the date of grant. ISOs and non-statutory stock options granted under the Plan are subject to vesting provisions, and exercise is subject to the continuous service of the participant. The exercise prices and vesting periods (if any) for non-statutory options are set at the discretion of the Company’s Board.compensation committee. Upon a change of control of the Company, all stock options (incentive and
non-statutory) that have not previously vested will vest immediately and become fully exercisable. In connection with the grants of stock options under the Plan, the Company and the participants have executed stock option agreements setting forth the terms of the grants.
During the fiscal year ended March 31, 20122013, under the Plan, the Company granted stock options to purchase 2,155,500972,000 shares of its Class A Common Stock to its employees at exercise prices ranging from $1.15$1.37 to $3.00$1.72 per share, which will vest equally over a threefour year period. As of March 31, 20122013, the weighted average exercise price for outstanding stock options is $2.272.16 and the weighted average remaining contractual life is 7.56.91 years. The following table summarizes the activity of the Plan related to shares issuable pursuant to outstanding options: | | | Shares Under Option | | Weighted Average Exercise Price Per Share | Shares Under Option | | Weighted Average Exercise Price Per Share | Balance at March 31, 2010 | 3,910,372 |
| | $ | 4.11 |
| | Granted | 257,964 |
| | 1.45 |
| | Exercised | — |
| | — |
| | Cancelled | (1,553,349 | ) | | 5.34 |
| | Balance at March 31, 2011 | 2,614,987 |
| | 3.12 |
| 2,614,987 |
| | $ | 3.12 |
| Granted | 2,155,500 |
| | 1.77 |
| 2,155,500 |
| | 1.77 |
| Exercised | (93,628 | ) | | 1.37 |
| (93,628 | ) | | 1.37 |
| Cancelled | (986,069 | ) | | 3.50 |
| | Canceled | | (986,069 | ) | | 3.50 |
| Balance at March 31, 2012 | 3,690,790 |
| | 2.27 |
| 3,690,790 |
| | 2.27 |
| Granted | | 972,000 |
| | 1.60 |
| Exercised | | — |
| | — |
| Canceled | | (609,790 | ) | | 1.91 |
| Balance at March 31, 2013 | | 4,053,000 |
| | 2.16 |
|
An analysis of all options outstanding under the Plan as of March 31, 20122013 is presented below: | | | | | | | | | | | | | | | Range of Prices | | Options Outstanding | | Weighted Average Remaining Life in Years | | Weighted Average Exercise Price | | Aggregate Intrinsic Value | $0.63 - $1.15 | | 5,000 |
| | 9.52 | | $ | 1.15 |
| | $ | 2,700 |
| $1.36 - $2.19 | | 2,891,540 |
| | 7.97 | | 1.47 |
| | 673,529 |
| $2.23 - $3.60 | | 397,250 |
| | 8.24 | | 2.98 |
| | — |
| $4.81 - $7.55 | | 284,500 |
| | 3.53 | | 5.82 |
| | — |
| $7.60 - $13.52 | | 112,500 |
| | 4.10 | | 11.33 |
| | — |
| | | 3,690,790 |
| | 7.54 | | 2.27 |
| | $ | 676,229 |
|
| | | | | | | | | | | | | | | | Range of Prices | | Options Outstanding | | Weighted Average Remaining Life in Years | | Weighted Average Exercise Price | | Aggregate Intrinsic Value | $0.01 - $1.37 | | 1,130,845 |
| | 4.8 |
| | $ | 1.37 |
| | $ | 216,161 |
| $1.38 - $1.75 | | 2,039,845 |
| | 8.7 |
| | 1.49 |
| | 155,392 |
| $1.76 - $2.25 | | 122,660 |
| | 7.5 |
| | 1.99 |
| | — |
| $2.26 - $3.00 | | 352,650 |
| | 8.6 |
| | 3.00 |
| | — |
| $3.01 - $5.00 | | 139,500 |
| | 1.1 |
| | 4.59 |
| | — |
| $5.01 - $15.00 | | 267,500 |
| | 3.0 |
| | 8.30 |
| | — |
| | | 4,053,000 |
| | | | | | $ | 371,553 |
|
An analysis of all options exercisable under the Plan as of March 31, 20122013 is presented below: | | Options Exercisable | Options Exercisable | | Weighted Average Remaining Life in Years | | Weighted Average Exercise Price | | Aggregate Intrinsic Value | Options Exercisable | | Weighted Average Remaining Life in Years | | Weighted Average Exercise Price | | Aggregate Intrinsic Value | 1,035,862 |
| | 4.01 |
| | $ | 3.80 |
| | $ | 164,098 |
| | 1,982,564 | |
| | 4.94 |
| | $ | 2.63 |
| | $ | 227,816 |
|
As of March 31, 2012, unamortized stock-based compensation relating to options outstanding totaled $1,700, which will be expensed over the next 3.1 years.
In December 2010, the Company issued the new CEO options to purchase 4,500,000 shares of Class A Common Stock, 1,500,000 of which carry an exercise price of $1.50, 2,500,000 of which carry an exercise price of $3.00, and 500,000 of which carry an exercise price of $5.00. One-third of the options in each tranche began vesting in December 2011 and will finish in December 2013 and all of the options have a term of ten (10) years. These options were issued outside of the Plan as an inducement to entering into employment with the Company. For the fiscal years ended March 31, 2012 and 2011, the Company recorded $1,213 and $315 of stock-based compensation expense relating to these options, respectively.
Restricted Stock Awards
The Plan also provides for the issuance of restricted stock and restricted stock unit awards. During the fiscal year ended March 31, 20122013, the Company did not grant any restricted stock or restricted stock units.
The following table summarizes the activity of the Plan related to restricted stock awards: | | | | | | | | | Restricted Stock Awards | | Weighted Average Market Price Per Share | Balance at March 31, 2010 | 1,065,674 |
| | $ | 1.83 |
| Granted | 153,843 |
| | 1.40 |
| Vested | (399,898 | ) | | 0.94 |
| Cancelled | (89,035 | ) | | 1.44 |
| Balance at March 31, 2011 | 730,584 |
| | 1.40 |
| Granted | — |
| | — |
| Vested | (453,968 | ) | | 1.54 |
| Cancelled | (119,418 | ) | | 1.17 |
| Balance at March 31, 2012 | 157,198 |
| | 1.18 |
|
There were 157,198 restricted stock units granted which have not vested as of March 31, 2012. The Company may pay such restricted stock units upon vesting in cash or shares of Class A Common Stock or a combination thereof at the Company’s discretion.
For the fiscal years ended March 31, 2012 and 2011, the Company recorded $120 and $559, respectively, of stock-based compensation expense from continuing operations relating to restricted stock awards. As of March 31, 2012, unamortized stock-based compensation relating to restricted stock awards outstanding totaled $61, which will be expensed over the next 1.0 years. | | | | | | | | | Restricted Stock Awards | | Weighted Average Market Price Per Share | Balance at March 31, 2011 | 730,584 |
| | $ | 1.40 |
| Granted | — |
| | — |
| Vested | (453,968 | ) | | 1.54 |
| Cancelled | (119,418 | ) | | 1.17 |
| Balance at March 31, 2012 | 157,198 |
| | 1.18 |
| Granted | — |
| | — |
| Vested | (122,601 | ) | | 1.12 |
| Cancelled | (18,489 | ) | | 1.37 |
| Balance at March 31, 2013 | 16,108 |
| | 1.40 |
|
WARRANTS
At March 31, 20122013, outstanding warrants consisted of 16,000,000 held by Sageview ("Sageview Warrants") and 525,000 held by a strategic management service provider.
The Sageview Warrants were exercisable beginning on September 30, 2009, contain a customary cashless exercise provision and anti-dilution adjustments, and expire on August 11, 2016 (subject to extension in limited circumstances). The Company also entered into a Registration Rights Agreement with Sageview pursuant to which the Company agreed to register the resale of the Sageview Warrants and the underlying shares of the Sageview Warrants from time to time in accordance with the terms of such Registration Rights Agreement. Based on the terms of the warrant and the Registration Rights Agreement, the Company determined that the fair value of the Sageview Warrant represents a liability until such time when the underlying common shares are registered. The shares underlying the Sageview Warrant were registered with the SEC for resale in September 2010 and the Company reclassified the warrant liability of $16,054 to stockholders' equity.
The strategic management service provider warrants were issued in connection with a consulting management services agreement entered into with the Company. These warrants for the purchase of 525,000 shares of Class A common stock vestvested over 18 months commencing in July 2011, and are subject to termination with 90 days notice in the event of termination of the consulting management services agreement.agreement and expire on July 1, 2021.
| | 9. | COMMITMENTS AND CONTINGENCIES |
As of March 31, 2012, in connection withThe Company is subject to a capital lease obligation where we have no continuing involvement other than being the Phase II Deployment, Phase 2 DC has entered into digital cinema deployment agreements with various motion picture studios forprimary obligor. A sub-lease agreement, through which an unrelated third party purchaser pays the distribution of digital movie releases to motion picture exhibitors equipped with Systems, and providing for payment of VPFs to Phase 2 DC.
In November 2008, in connection with the Phase II Deployment, Phase 2 DC entered into a supply agreement with Christie, for
the purchase of up to 10,000 Systems at agreed upon pricing, as partcapital lease, was amended during January 2013. The impact of the Phase II Deployment. As of March 31, 2012,capital lease amendment to the Company has purchased Systems under this agreement for $898 and has no purchase obligations for additional Systems.
In November 2008, in connection with the Phase II Deployment, Phase 2 DC entered into a supply agreement with Barco, for the purchase of up to 5,000 Systems at agreed upon pricing, as part of the Phase II Deployment. As of March 31, 2012, the Company has purchased Systems under this agreement for an accumulated total of $59,927 and has additional purchase obligations for approximately $2,148.Company's consolidated financial statements was not material.
LITIGATION
We are subject to certain legal proceedings in the ordinary course of business. We do not expect any such items to have a significant impact on our financial position and results of operations and liquidity.
LEASES
As of March 31, 20122013, the Company has outstanding capital lease obligations from continuing operations of $5,4304,518. In May 2011, the Company completed the sale of certain assets and liabilities of the Pavilion Theatre and from that point forward, will not be operated by the Company. The Company has remained the primary obligor on the Pavilion capital lease and entered into a separate sublease agreement with the third party to sublet the Pavilion Theatre.
The Company’s outstandingDuring the fiscal year ended March 31, 2013, the Company reduced its capital lease obligations areobligation resulting from an amended sub-lease agreement in January 2013, through which an unrelated third party purchaser pays the following principal amounts:capital lease and the Company is the primary obligor.
| | | | | | | | | | | | | | | | As of March 31, | Entity | | Purpose of capital lease | | 2012 | | 2011 | Corporate | | Pavilion Theatre | | $ | 5,430 |
| | $ | — |
| Phase 2 DC | | Computer equipment | | — |
| | 13 |
| | | | | $ | 5,430 |
| | $ | 13 |
|
As of March 31, 20122013, minimum future capital lease payments (including interest) totaled $11,884$9,681, are due as follows: | | For the fiscal years ending March 31, | 2013 | $ | 1,132 |
| | 2014 | 1,152 |
| $ | 921 |
| 2015 | 1,152 |
| 921 |
| 2016 | 1,152 |
| 921 |
| 2017 | 1,152 |
| 921 |
| 2018 | | 1,003 |
| Thereafter | 6,144 |
| 4,994 |
| | 11,884 |
| 9,681 |
| Less: amount representing interest | (6,454 | ) | (5,163 | ) | Outstanding capital lease obligation | $ | 5,430 |
| $ | 4,518 |
|
The corresponding asset included in property and equipment, net for the Pavilion Theatre was $3,561$2,635 as of March 31, 2012.2013.
Amortization expense on assets under capitalized lease agreements was $342239 and $12342 for the fiscal years ended March 31, 20122013 and 20112012 respectively.
The Company’s businesses operate from leased properties under non-cancelable operating lease agreements. As of March 31, 20122013, obligations under non-cancelable operating leases totaled $5,2423,167 and are due as follows:
| | For the fiscal years ending March 31, | 2013 | $ | 1,255 |
| | 2014 | 1,253 |
| $ | 1,235 |
| 2015 | 1,269 |
| 1,123 |
| 2016 | 1,142 |
| 809 |
| 2017 | 323 |
| | | $ | 5,242 |
| $ | 3,167 |
|
Total rent expense was $704$1,217 and $557$704 for the fiscal years ended March 31, 20122013 and 20112012, respectively.
| | 10. | SUPPLEMENTAL CASH FLOW DISCLOSURE |
| | | | | | | | | | As of March 31, | | 2012 | | 2011 | Cash interest paid | $ | 20,188 |
| | $ | 24,338 |
| Assets acquired under capital leases | $ | — |
| | $ | 27 |
| Accretion of preferred stock discount | $ | 107 |
| | $ | 108 |
| Accrued dividends on preferred stock | $ | (356 | ) | | $ | (394 | ) | Issuance of Class A Common Stock as payment of dividends on preferred stock | $ | — |
| | $ | 655 |
| Issuance of Class A Common Stock and warrants for professional services of third parties | $ | 586 |
| | $ | 104 |
| Cashless exercise of Preferred Warrants | $ | — |
| | $ | 441 |
| Issuance of Class A Common Stock to Board of Directors for services | $ | 426 |
| | $ | 390 |
| Issuance of Class A Common Stock as bonus | $ | 357 |
| | $ | 113 |
|
| | | | | | | | | | For the Fiscal Year Ended March 31, | | 2013 | | 2012 | Cash interest paid | $ | 18,368 |
| | $ | 20,188 |
| Accretion of preferred stock discount | $ | 109 |
| | $ | 107 |
| Accrued dividends on preferred stock | $ | 356 |
| | $ | 356 |
| Issuance of Class A Common Stock in connection with New Video acquisition | $ | 3,432 |
| | $ | — |
| Issuance of Class A Common Stock and warrants for professional services of third parties | $ | — |
| | $ | 586 |
|
The Company is now comprised of four reportable segments: Phase I Deployment, Phase II Deployment, Services and Content & Entertainment. Our former Other segment has been reclassified as discontinued operations (see Note 1 and Note 3). The segments were determined based on the products and services provided by each segment and how management reviews and makes decisions regarding segment operations. Performance of the segments is evaluated on the segment’s income (loss) from continuing operations before interest, taxes, depreciation and amortization. As a result of the change in the Company’s reportable segments during the year ended March 31, 2012, the Company has restated the segment information for the prior periods. All segment information has been restated to reflect the changes described above for all periods presented. The Phase I Deployment and Phase II Deployment segments consist of the following: | | | Operations of: | Products and services provided: | Phase 1 DC | Financing vehicles and administrators for the Company’s 3,724 Systems installed nationwide in Phase 1 DC’s deployment to theatrical exhibitors. The Company retains ownership of the Systems and the residual cash flows related to the Systems after the repayment of all non-recourse debt and the Company retains at the expiration of exhibitor master license agreements. | Phase 2 DC | Financing vehicles and administrators for the Company’s 7,980 Systems installed in the second digital cinema deployment, through Phase 2 DC. The Company retains no ownership of the residual cash flows and digital cinema equipment after the completion of cost recoupment and at the expiration of the exhibitor master license agreements. |
The Services segment consists of the following: | | | Operations of: | Products and services provided: | Services | Provides monitoring, billing, collection, verification and other management services to the Company’s Phase I Deployment, Phase II Deployment, Holdings, as well as to exhibitors who purchase their own equipment. Collects and disburses VPFs from motion picture studios and distributors and ACFs from alternative content providers, movie exhibitors and theatrical exhibitors. | Software | Develops and licenses software to the theatrical distribution and exhibition industries as well as other content owners, provides ASP Service,services, and provides software enhancements and consulting services. |
The Content & Entertainment segment consists of the following: | | | Operations of: | Products and services provided: | CEG | Acquires, distributesAs a leading distributor of independent digital content, CEG collaborates with producers and provides the marketing for programs of alternativeexhibition community to market, source, curate and distribute independent content to targeted and feature films to movie exhibitors.profitable audiences in theatres and homes, and via mobile and emerging platforms.
|
One customer represented 11% of consolidated revenues of the Company for the fiscal year ended March 31, 2013.
Information related to the segments of the Company and its subsidiaries is detailed below:
| | | | As of March 31, 2012 | | As of March 31, 2013 | | | Phase I | | Phase II | | Services | | Content & Entertainment | | Corporate | | Consolidated | | Phase I | | Phase II | | Services | | Content & Entertainment | | Corporate | | Consolidated | Total intangible assets, net | | $ | 390 |
| | $ | 13 |
| | $ | 46 |
| | $ | 17 |
| | $ | — |
| | $ | 466 |
| | $ | 344 |
| | $ | 6 |
| | $ | 49 |
| | $ | 12,449 |
| | $ | — |
| | $ | 12,848 |
| Total goodwill | | $ | — |
| | $ | — |
| | $ | 4,197 |
| | $ | 1,568 |
| | $ | — |
| | $ | 5,765 |
| | $ | — |
| | $ | — |
| | $ | 4,197 |
| | $ | 8,542 |
| | $ | — |
| | $ | 12,739 |
| Assets from continuing operations | | $ | 166,020 |
| | $ | 84,394 |
| | $ | 15,364 |
| | $ | 2,284 |
| | $ | 21,861 |
| | $ | 289,923 |
| | Assets held for sale | | | | | | | | | | | | 214 |
| | Total assets | | | | | | | | | | | | $ | 290,137 |
| | $ | 137,880 |
| | $ | 79,139 |
| | $ | 21,864 |
| | $ | 39,158 |
| | $ | 6,017 |
| | $ | 284,058 |
| | | | | | | | | | | | | | | | | | | | | | | | | | Notes payable, non-recourse | | $ | 117,550 |
| | $ | 53,439 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 170,989 |
| | $ | 192,609 |
| | $ | 45,300 |
| | $ | — |
| | $ | — |
| |
|
| | $ | 237,909 |
| Notes payable | | — |
| | — |
| | — |
| | — |
| | 87,354 |
| | 87,354 |
| | Capital leases | | — |
| | — |
| | — |
| | — |
| | 5,430 |
| | 5,430 |
| | — |
| | — |
| | — |
| | — |
| | 4,518 |
| | 4,518 |
| Total debt | | $ | 117,550 |
| | $ | 53,439 |
| | $ | — |
| | $ | — |
| | $ | 92,784 |
| | $ | 263,773 |
| | $ | 192,609 |
| | $ | 45,300 |
| | $ | — |
| | $ | — |
| | $ | 4,518 |
| | $ | 242,427 |
|
| | | | As of March 31, 2011 | | As of March 31, 2012 | | | Phase I | | Phase II | | Services | | Content & Entertainment | | Corporate | | Consolidated | | Phase I | | Phase II | | Services | | Content & Entertainment | | Corporate | | Consolidated | Total intangible assets, net | | $ | 434 |
| | $ | — |
| | $ | 38 |
| | $ | 224 |
| | $ | 1 |
| | $ | 697 |
| | $ | 390 |
| | $ | 13 |
| | $ | 46 |
| | $ | 17 |
| | $ | — |
| | $ | 466 |
| Total goodwill | | $ | — |
| | $ | — |
| | $ | 4,197 |
| | $ | 1,568 |
| | $ | — |
| | $ | 5,765 |
| | $ | — |
| | $ | — |
| | $ | 4,197 |
| | $ | 1,568 |
| | $ | — |
| | $ | 5,765 |
| Assets from continuing operations | | $ | 193,318 |
| | $ | 59,704 |
| | $ | 12,896 |
| | $ | 2,699 |
| | $ | 13,701 |
| | $ | 282,318 |
| | $ | 166,020 |
| | $ | 84,394 |
| | $ | 15,364 |
| | $ | 2,284 |
| | $ | 21,861 |
| | $ | 289,923 |
| Assets held for sale | | | | | | | | | | | | 25,170 |
| | | | | | | | | | | | 214 |
| Total assets | | | | | | | | | | | | $ | 307,488 |
| | | | | | | | | | | | $ | 290,137 |
| | | | | | | | | | | | | | | | | | | | | | | | | | Notes payable, non-recourse | | $ | 147,413 |
| | $ | 45,141 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 192,554 |
| | $ | 117,550 |
| | $ | 53,439 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 170,989 |
| Notes payable | | — |
| | — |
| | — |
| | — |
| | 78,169 |
| | 78,169 |
| | — |
| | — |
| | — |
| | — |
| | 87,354 |
| | 87,354 |
| Capital leases | | — |
| | — |
| | — |
| | — |
| | 13 |
| | 13 |
| | — |
| | — |
| | — |
| | — |
| | 5,430 |
| | 5,430 |
| Total debt | | $ | 147,413 |
| | $ | 45,141 |
| | $ | — |
| | $ | — |
| | $ | 78,182 |
| | $ | 270,736 |
| | $ | 117,550 |
| | $ | 53,439 |
| | $ | — |
| | $ | — |
| | $ | 92,784 |
| | $ | 263,773 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | Capital Expenditures | | | For the Fiscal Years Ended March 31, | | | Phase I | | Phase II | | Services | | Content & Entertainment | | Corporate1 | | Consolidated | 2012 | | $ | — |
| | $ | 16,000 |
| | $ | 218 |
| | $ | 40 |
| | $ | 137 |
| | $ | 16,395 |
| 2011 | | $ | — |
| | $ | 42,411 |
| | $ | 758 |
| | $ | 136 |
| | $ | 1 |
| | $ | 43,306 |
|
(1) All capital expenditures during the fiscal year ended March 31, 2012 pertained to discontinued operations.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | Statements of Operations | | | For the Three Months Ended March 31, 2013 | | | (Unaudited) | | | Phase I | | Phase II | | Services | | Content & Entertainment | | Corporate | | Consolidated | Revenues from external customers | | $ | 9,871 |
| | $ | 3,151 |
| | $ | 4,281 |
| | $ | 4,052 |
| | $ | — |
| | $ | 21,355 |
| Intersegment revenues (1) | | — |
| | — |
| | 278 |
| | 8 |
| | — |
| | 286 |
| Total segment revenues | | 9,871 |
| | 3,151 |
| | 4,559 |
| | 4,060 |
| | — |
| | 21,641 |
| Less: Intersegment revenues | | — |
| | — |
| | (278 | ) | | (8 | ) | | — |
| | (286 | ) | Total consolidated revenues | | $ | 9,871 |
| | $ | 3,151 |
| | $ | 4,281 |
| | $ | 4,052 |
| | $ | — |
| | $ | 21,355 |
| Direct operating (exclusive of depreciation and amortization shown below) (2) | | 112 |
| | 174 |
| | 1,152 |
| | 2,519 |
| | — |
| | 3,957 |
| Selling, general and administrative | | 3 |
| | 52 |
| | 1,034 |
| | 2,114 |
| | 1,456 |
| | 4,659 |
| Plus: Allocation of Corporate overhead | | — |
| | — |
| | 1,283 |
| | 668 |
| | (1,951 | ) | | — |
| Research and development | | — |
| | — |
| | 32 |
| |
|
| | — |
| | 32 |
| Provision for doubtful accounts | | 62 |
| | 13 |
| | 18 |
| | 65 |
| | 106 |
| | 264 |
| Depreciation and amortization of property and equipment | | 7,137 |
| | 1,893 |
| | 34 |
| | 55 |
| | 7 |
| | 9,126 |
| Amortization of intangible assets | | 12 |
| | 2 |
| | 7 |
| | 423 |
| | 1 |
| | 445 |
| Total operating expenses | | 7,326 |
| | 2,134 |
| | 3,560 |
| | 5,844 |
| | (381 | ) | | 18,483 |
| Income (loss) from operations | | $ | 2,545 |
| | $ | 1,017 |
| | $ | 721 |
| | $ | (1,792 | ) | | $ | 381 |
| | $ | 2,872 |
|
(1) Intersegment revenues of the Services segment principally represent service fees earned from the Phase I and Phase II Deployments. (2) Included in direct operating of the Services segment is $336 for the amortization of capitalized software development costs.
The following employee and director stock-based compensation expense related to the Company’s stock-based awards is included in the above amounts as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | Statements of Operations | | | For the Three Months Ended March 31, 2012 | | | (Unaudited) | | | Phase I | | Phase II | | Services | | Content & Entertainment | | Corporate | | Consolidated | Revenues from external customers | | $ | 10,702 |
| | $ | 3,458 |
| | $ | 3,391 |
| | $ | 144 |
| | $ | — |
| | $ | 17,695 |
| Intersegment revenues (1) | | 7 |
| | — |
| | 1,652 |
| | 1 |
| | — |
| | 1,660 |
| Total segment revenues | | 10,709 |
| | 3,458 |
| | 5,043 |
| | 145 |
| | — |
| | 19,355 |
| Less: Intersegment revenues | | (7 | ) | | — |
| | (1,652 | ) | | (1 | ) | | — |
| | (1,660 | ) | Total consolidated revenues | | $ | 10,702 |
| | $ | 3,458 |
| | $ | 3,391 |
| | $ | 144 |
| | $ | — |
| | $ | 17,695 |
| Direct operating (exclusive of depreciation and amortization shown below) (2) | | 79 |
| | 109 |
| | 1,217 |
| | 243 |
| | — |
| | 1,648 |
| Selling, general and administrative | | 22 |
| | 68 |
| | 1,014 |
| | 401 |
| | 2,428 |
| | 3,933 |
| Plus: Allocation of Corporate overhead | | — |
| | — |
| | 1,090 |
| | (59 | ) | | (1,031 | ) | | — |
| Research and development | | — |
| | — |
| | 13 |
| | — |
| | — |
| | 13 |
| Provision for doubtful accounts | | 56 |
| | 28 |
| | — |
| | — |
| | 375 |
| | 459 |
| Restructuring and transition expenses | | — |
| | — |
| | — |
| | — |
| | 375 |
| | 375 |
| Merger and acquisition expenses | | — |
| | — |
| | — |
| | — |
| | 604 |
| | 604 |
| Depreciation and amortization of property and equipment | | 7,137 |
| | 1,864 |
| | 37 |
| | 4 |
| | 104 |
| | 9,146 |
| Amortization of intangible assets | | 12 |
| | 1 |
| | 4 |
| | 23 |
| | 1 |
| | 41 |
| Total operating expenses | | 7,306 |
| | 2,070 |
| | 3,375 |
| | 612 |
| | 2,856 |
| | 16,219 |
| Income (loss) from operations | | $ | 3,396 |
| | $ | 1,388 |
| | $ | 16 |
| | $ | (468 | ) | | $ | (2,856 | ) | | $ | 1,476 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | Phase I | | Phase II | | Services | | Content & Entertainment | | Corporate | | Consolidated | Direct operating | | $ | — |
| | $ | — |
| | $ | 14 |
| | $ | 2 |
| | $ | — |
| | $ | 16 |
| Selling, general and administrative | | — |
| | — |
| | 25 |
| | 21 |
| | 358 |
| | 404 |
| Research and development | | — |
| | — |
| | 32 |
| | — |
| | — |
| | 32 |
| Total stock-based compensation | | $ | — |
| | $ | — |
| | $ | 71 |
| | $ | 23 |
| | $ | 358 |
| | $ | 452 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | Statements of Operations | | | For the Three Months Ended March 31, 2012 | | | (Unaudited) | | | Phase I | | Phase II | | Services | | Content & Entertainment | | Corporate | | Consolidated | Revenues from external customers | | $ | 10,176 |
| | $ | 3,156 |
| | $ | 4,219 |
| | $ | 144 |
| | $ | — |
| | $ | 17,695 |
| Intersegment revenues (1) | | — |
| | — |
| | 824 |
| | 1 |
| | — |
| | 825 |
| Total segment revenues | | 10,176 |
| | 3,156 |
| | 5,043 |
| | 145 |
| | — |
| | 18,520 |
| Less: Intersegment revenues | | — |
| | — |
| | (824 | ) | | (1 | ) | | — |
| | (825 | ) | Total consolidated revenues | | $ | 10,176 |
| | $ | 3,156 |
| | $ | 4,219 |
| | $ | 144 |
| | $ | — |
| | $ | 17,695 |
| Direct operating (exclusive of depreciation and amortization shown below) (2) | | 79 |
| | 109 |
| | 1,217 |
| | 243 |
| | — |
| | 1,648 |
| Selling, general and administrative | | 22 |
| | 68 |
| | 1,014 |
| | 401 |
| | 2,428 |
| | 3,933 |
| Plus: Allocation of Corporate overhead | | — |
| | — |
| | 1,090 |
| | (59 | ) | | (1,031 | ) | | — |
| Research and development | | — |
| | — |
| | 13 |
| | — |
| | — |
| | 13 |
| Provision for doubtful accounts | | 56 |
| | 28 |
| | — |
| | — |
| | 375 |
| | 459 |
| Restructuring and transition expenses | | — |
| | — |
| | — |
| | — |
| | 375 |
| | 375 |
| Merger and acquisition expenses | | — |
| | — |
| | — |
| | — |
| | 604 |
| | 604 |
| Depreciation and amortization of property and equipment | | 7,137 |
| | 1,864 |
| | 37 |
| | 4 |
| | 104 |
| | 9,146 |
| Amortization of intangible assets | | 12 |
| | 1 |
| | 4 |
| | 23 |
| | 1 |
| | 41 |
| Total operating expenses | | 7,306 |
| | 2,070 |
| | 3,375 |
| | 612 |
| | 2,856 |
| | 16,219 |
| Income (loss) from operations | | $ | 2,870 |
| | $ | 1,086 |
| | $ | 844 |
| | $ | (468 | ) | | $ | (2,856 | ) | | $ | 1,476 |
|
(1) Intersegment revenues of the Services segment represent service fees earned from the Phase I and Phase II Deployments. (2) Included in direct operating of the Services segment is $265$265 for the amortization of capitalized software development costs.
The following employee and director stock-based compensation expense related to the Company’s stock-based awards is included in the above amounts as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | Phase I | | Phase II | | Services | | Content & Entertainment | | Corporate | | Consolidated | Direct operating | | $ | — |
| | $ | — |
| | $ | 15 |
| | $ | (2 | ) | | $ | — |
| | $ | 13 |
| Selling, general and administrative | | — |
| | — |
| | 84 |
| | 13 |
| | 433 |
| | 530 |
| Research and development | | — |
| | — |
| | (27 | ) | | — |
| | — |
| | (27 | ) | Total stock-based compensation | | $ | — |
| | $ | — |
| | $ | 72 |
| | $ | 11 |
| | $ | 433 |
| | $ | 516 |
|
| | | | Statements of Operations | | | | | | | | | | | | | | | | | | | | | | | | | | | For the Three Months Ended March 31, 2011 | | Statements of Operations | | | (Unaudited) | | For the Fiscal Year Ended March 31, 2013 | | | Phase I | | Phase II | | Services | | Content & Entertainment | | Corporate | | Consolidated | | Phase I | | Phase II | | Services | | Content & Entertainment | | Corporate | | Consolidated | Revenues from external customers | | $ | 9,355 |
| | $ | 2,427 |
| | $ | 3,126 |
| | $ | 453 |
| | $ | — |
| | $ | 15,361 |
| | $ | 39,646 |
| | $ | 12,464 |
| | $ | 19,920 |
| | $ | 16,050 |
| | $ | — |
| | $ | 88,080 |
| Intersegment revenues (1) | | 2 |
| | — |
| | 804 |
| | (10 | ) | | — |
| | 796 |
| | — |
| | — |
| | 951 |
| | 32 |
| | — |
| | 983 |
| Total segment revenues | | 9,357 |
| | 2,427 |
| | 3,930 |
| | 443 |
| | — |
| | 16,157 |
| | 39,646 |
| | 12,464 |
| | 20,871 |
| | 16,082 |
| | — |
| | 89,063 |
| Less: Intersegment revenues | | (2 | ) | | — |
| | (804 | ) | | 10 |
| | — |
| | (796 | ) | | — |
| | — |
| | (951 | ) | | (32 | ) | | — |
| | (983 | ) | Total consolidated revenues | | $ | 9,355 |
| | $ | 2,427 |
| | $ | 3,126 |
| | $ | 453 |
| | $ | — |
| | $ | 15,361 |
| | $ | 39,646 |
| | $ | 12,464 |
| | $ | 19,920 |
| | $ | 16,050 |
| | $ | — |
| | $ | 88,080 |
| Direct operating (exclusive of depreciation and amortization shown below) (2) | | 123 |
| | 118 |
| | 627 |
| | 424 |
| | — |
| | 1,292 |
| | 459 |
| | 687 |
| | 4,795 |
| | 6,548 |
| | — |
| | 12,489 |
| Selling, general and administrative | | 9 |
| | 15 |
| | 907 |
| | 333 |
| | 1,847 |
| | 3,111 |
| | 92 |
| | 139 |
| | 3,865 |
| | 8,308 |
| | 10,719 |
| | 23,123 |
| Plus: Allocation of Corporate overhead | | — |
| | — |
| | 1,132 |
| | 86 |
| | (1,218 | ) | | — |
| | — |
| | — |
| | 5,168 |
| | 3,392 |
| | (8,560 | ) | | — |
| Provision for doubtful accounts | | (1 | ) | | — |
| | 2 |
| | 1 |
| | — |
| | 2 |
| | 218 |
| | 59 |
| | 42 |
| | 65 |
| | 106 |
| | 490 |
| Research and development | | — |
| | — |
| | 41 |
| | — |
| | — |
| | 41 |
| | — |
| | — |
| | 144 |
| | — |
| | — |
| | 144 |
| Restructuring and transition expenses | | — |
| | — |
| | — |
| | — |
| | 177 |
| | 177 |
| | Restructuring expenses | | | — |
| | — |
| | — |
| | 340 |
| | — |
| | 340 |
| Merger and acquisition expenses | | | — |
| | — |
| | — |
| | — |
| | 1,267 |
| | 1,267 |
| Depreciation and amortization of property and equipment | | 7,140 |
| | 1,450 |
| | 18 |
| | 1 |
| | 8 |
| | 8,617 |
| | 28,549 |
| | 7,371 |
| | 148 |
| | 72 |
| | 358 |
| | 36,498 |
| Amortization of intangible assets | | 11 |
| | — |
| | 4 |
| | 68 |
| | — |
| | 83 |
| | 46 |
| | 7 |
| | 27 |
| | 1,483 |
| | 2 |
| | 1,565 |
| Total operating expenses | | 7,282 |
| | 1,583 |
| | 2,731 |
| | 913 |
| | 814 |
| | 13,323 |
| | 29,364 |
| | 8,263 |
| | 14,189 |
| | 20,208 |
| | 3,892 |
| | 75,916 |
| Income (loss) from operations | | $ | 2,073 |
| | $ | 844 |
| | $ | 395 |
| | $ | (460 | ) | | $ | (814 | ) | | $ | 2,038 |
| | $ | 10,282 |
| | $ | 4,201 |
| | $ | 5,731 |
| | $ | (4,158 | ) | | $ | (3,892 | ) | | $ | 12,164 |
|
(1) Included in intersegmentIntersegment revenues of the Services segment is $733 forprincipally represent service fees earned from the Phase I and Phase II Deployments. (2) Included in direct operating of the Services segment is $65$1,165 for the amortization of capitalized software development costs.
The following employee and director stock-based compensation expense related to the Company’s stock-based awards is included in the above amounts as follows: | | | | Phase I | | Phase II | | Services | | Content & Entertainment | | Corporate | | Consolidated | | Phase I | | Phase II | | Services | | Content & Entertainment | | Corporate | | Consolidated | Direct operating | | $ | — |
| | $ | — |
| | $ | 5 |
| | $ | 1 |
| | $ | — |
| | $ | 6 |
| | $ | — |
| | $ | — |
| | $ | 67 |
| | $ | 15 |
| | $ | — |
| | $ | 82 |
| Selling, general and administrative | | — |
| | — |
| | 46 |
| | 7 |
| | 510 |
| | 563 |
| | — |
| | — |
| | 67 |
| | 84 |
| | 1,903 |
| | 2,054 |
| Research and development | | — |
| | — |
| | 11 |
| | — |
| | — |
| | 11 |
| | — |
| | — |
| | 143 |
| | — |
| | — |
| | 143 |
| Total stock-based compensation | | $ | — |
| | $ | — |
| | $ | 62 |
| | $ | 8 |
| | $ | 510 |
| | $ | 580 |
| | $ | — |
| | $ | — |
| | $ | 277 |
| | $ | 99 |
| | $ | 1,903 |
| | $ | 2,279 |
|
| | | | Statements of Operations
| | Statements of Operations
| | | For the Fiscal Year Ended March 31, 2012 | | For the Fiscal Year Ended March 31, 2012 | | | Phase I | | Phase II | | Services | | Content & Entertainment | | Corporate | | Consolidated | | Phase I | | Phase II | | Services | | Content & Entertainment | | Corporate | | Consolidated | Revenues from external customers | | $ | 44,561 |
| | $ | 13,335 |
| | $ | 17,065 |
| | $ | 1,596 |
| | $ | — |
| | $ | 76,557 |
| | $ | 42,028 |
| | $ | 11,714 |
| | $ | 21,219 |
| | $ | 1,596 |
| | $ | — |
| | $ | 76,557 |
| Intersegment revenues (1) | | 7 |
| | — |
| | 4,975 |
| | 132 |
| | — |
| | 5,114 |
| | — |
| | — |
| | 821 |
| | 132 |
| | — |
| | 953 |
| Total segment revenues | | 44,568 |
| | 13,335 |
| | 22,040 |
| | 1,728 |
| | — |
| | 81,671 |
| | 42,028 |
| | 11,714 |
| | 22,040 |
| | 1,728 |
| | — |
| | 77,510 |
| Less: Intersegment revenues | | (7 | ) | | — |
| | (4,975 | ) | | (132 | ) | | — |
| | (5,114 | ) | | — |
| | — |
| | (821 | ) | | (132 | ) | | — |
| | (953 | ) | Total consolidated revenues | | $ | 44,561 |
| | $ | 13,335 |
| | $ | 17,065 |
| | $ | 1,596 |
| | $ | — |
| | $ | 76,557 |
| | $ | 42,028 |
| | $ | 11,714 |
| | $ | 21,219 |
| | $ | 1,596 |
| | $ | — |
| | $ | 76,557 |
| Direct operating (exclusive of depreciation and amortization shown below) (2) | | 545 |
| | 365 |
| | 4,220 |
| | 1,912 |
| | — |
| | 7,042 |
| | 545 |
| | 365 |
| | 4,220 |
| | 1,912 |
| | — |
| | 7,042 |
| Selling, general and administrative | | 221 |
| | 202 |
| | 3,434 |
| | 1,791 |
| | 10,069 |
| | 15,717 |
| | 221 |
| | 202 |
| | 3,434 |
| | 1,791 |
| | 10,069 |
| | 15,717 |
| Plus: Allocation of Corporate overhead | | — |
| | — |
| | 5,785 |
| | 356 |
| | (6,141 | ) | | — |
| | — |
| | — |
| | 5,785 |
| | 356 |
| | (6,141 | ) | | — |
| Provision for doubtful accounts | | | 56 |
| | 28 |
| | — |
| | 375 |
| | — |
| | 459 |
| Research and development | | — |
| | — |
| | 175 |
| | — |
| | — |
| | 175 |
| | — |
| | — |
| | 175 |
| | — |
| | — |
| | 175 |
| Provision for doubtful accounts | | 56 |
| | 28 |
| | — |
| | 375 |
| | — |
| | 459 |
| | Restructuring and transition expenses | | — |
| | — |
| | — |
| | — |
| | 1,207 |
| | 1,207 |
| | — |
| | — |
| | — |
| | — |
| | 1,207 |
| | 1,207 |
| Merger and acquisition expenses | | — |
| | — |
| | — |
| | — |
| | 604 |
| | 604 |
| | — |
| | — |
| | — |
| | — |
| | 604 |
| | 604 |
| Depreciation and amortization of property and equipment | | 28,553 |
| | 6,778 |
| | 158 |
| | 8 |
| | 368 |
| | 35,865 |
| | 28,553 |
| | 6,778 |
| | 158 |
| | 8 |
| | 368 |
| | 35,865 |
| Amortization of intangible assets | | 46 |
| | 6 |
| | 16 |
| | 225 |
| | 1 |
| | 294 |
| | 46 |
| | 6 |
| | 16 |
| | 225 |
| | 1 |
| | 294 |
| Total operating expenses | | 29,421 |
| | 7,379 |
| | 13,788 |
| | 4,667 |
| | 6,108 |
| | 61,363 |
| | 29,421 |
| | 7,379 |
| | 13,788 |
| | 4,667 |
| | 6,108 |
| | 61,363 |
| Income (loss) from operations | | $ | 15,140 |
| | $ | 5,956 |
| | $ | 3,277 |
| | $ | (3,071 | ) | | $ | (6,108 | ) | | $ | 15,194 |
| | $ | 12,607 |
| | $ | 4,335 |
| | $ | 7,431 |
| | $ | (3,071 | ) | | $ | (6,108 | ) | | $ | 15,194 |
|
(1) Intersegment revenues of the Services segment represent service fees earned from the Phase I and Phase II Deployments. (2) Included in direct operating of the Services segment is $759$759 for the amortization of capitalized software development costs.
The following employee and director stock-based compensation expense related to the Company’s stock-based awards is included in the above amounts as follows: | | | | Phase I | | Phase II | | Services | | Content & Entertainment | | Corporate | | Consolidated | | Phase I | | Phase II | | Services | | Content & Entertainment | | Corporate | | Consolidated | Direct operating | | $ | — |
| | $ | — |
| | $ | 35 |
| | $ | 10 |
| | $ | — |
| | $ | 45 |
| | $ | — |
| | $ | — |
| | $ | 35 |
| | $ | 10 |
| | $ | 13 |
| | $ | 58 |
| Selling, general and administrative | | — |
| | — |
| | 248 |
| | 25 |
| | 1,561 |
| | 1,834 |
| | — |
| | — |
| | 248 |
| | 25 |
| | 2,385 |
| | 2,658 |
| Research and development | | — |
| | — |
| | 116 |
| | — |
| | — |
| | 116 |
| | — |
| | — |
| | 116 |
| | — |
| | — |
| | 116 |
| Total stock-based compensation | | $ | — |
| | $ | — |
| | $ | 399 |
| | $ | 35 |
| | $ | 1,561 |
| | $ | 1,995 |
| | $ | — |
| | $ | — |
| | $ | 399 |
| | $ | 35 |
| | $ | 2,398 |
| | $ | 2,832 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | Statements of Operations
| | | For the Fiscal Year Ended March 31, 2011 | | | Phase I | | Phase II | | Services | | Content & Entertainment | | Corporate | | Consolidated | Revenues from external customers | | $ | 43,431 |
| | $ | 6,481 |
| | $ | 7,399 |
| | $ | 1,128 |
| | $ | — |
| | $ | 58,439 |
| Intersegment revenues (1) | | 2 |
| | — |
| | 4,364 |
| | — |
| | — |
| | 4,366 |
| Total segment revenues | | 43,433 |
| | 6,481 |
| | 11,763 |
| | 1,128 |
| | — |
| | 62,805 |
| Less: Intersegment revenues | | (2 | ) | | — |
| | (4,364 | ) | | — |
| | — |
| | (4,366 | ) | Total consolidated revenues | | $ | 43,431 |
| | $ | 6,481 |
| | $ | 7,399 |
| | $ | 1,128 |
| | $ | — |
| | $ | 58,439 |
| Direct operating (exclusive of depreciation and amortization shown below) (2) | | 361 |
| | 185 |
| | 2,455 |
| | 1,328 |
| | — |
| | 4,329 |
| Selling, general and administrative | | 35 |
| | 49 |
| | 2,561 |
| | 1,319 |
| | 7,813 |
| | 11,777 |
| Plus: Allocation of Corporate overhead | | — |
| | — |
| | 4,863 |
| | 388 |
| | (5,251 | ) | | — |
| Provision for doubtful accounts | | 96 |
| | 11 |
| | 28 |
| | 9 |
| | — |
| | 144 |
| Research and development | | — |
| | — |
| | 256 |
| | — |
| | — |
| | 256 |
| Restructuring and transition expenses | | — |
| | — |
| | — |
| | — |
| | 1,403 |
| | 1,403 |
| Depreciation and amortization of property and equipment | | 28,557 |
| | 3,170 |
| | 149 |
| | 2 |
| | 38 |
| | 31,916 |
| Amortization of intangible assets | | 46 |
| | — |
| | 18 |
| | 269 |
| | — |
| | 333 |
| Total operating expenses | | 29,095 |
| | 3,415 |
| | 10,330 |
| | 3,315 |
| | 4,003 |
| | 50,158 |
| Income (loss) from operations | | $ | 14,336 |
| | $ | 3,066 |
| | $ | (2,931 | ) | | $ | (2,187 | ) | | $ | (4,003 | ) | | $ | 8,281 |
|
(1) Included in intersegment revenues of the Services segment is $4,293 for service fees earned from the Phase I and Phase II Deployments.
(2) Included in direct operating of the Services segment is $636 for the amortization of capitalized software development costs.
The following employee stock-based compensation expense related to the Company’s stock-based awards is included in the above amounts as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | Phase I | | Phase II | | Services | | Content & Entertainment | | Corporate | | Consolidated | Direct operating | | $ | — |
| | $ | — |
| | $ | 42 |
| | $ | 12 |
| | $ | — |
| | $ | 54 |
| Selling, general and administrative | | — |
| | — |
| | 174 |
| | 23 |
| | 1,858 |
| | 2,055 |
| Research and development | | — |
| | — |
| | 50 |
| | — |
| | — |
| | 50 |
| Total stock-based compensation | | $ | — |
| | $ | — |
| | $ | 266 |
| | $ | 35 |
| | $ | 1,858 |
| | $ | 2,159 |
|
| | 12. | RESTRUCTURING AND TRANSITION EXPENSES |
During the three monthsfiscal year ended DecemberMarch 31, 2011,2012, the Company completed a strategic assessment of its resource requirements for its ongoing businesses which resulted in a workforce reduction, lease termination and a severance and employee related charge of $832. $1,207. During the fiscal year ended March 31, 2013, the Company paid $903 of the amounts that were accrued as of March 31, 2012.
During the three months ended March 31,September 30, 2012, the Company recorded an additional $375 relatedcompleted a strategic assessment of its resource requirements within its Content & Entertainment reporting segment which, based upon the continued integration of the New Video Acquisition, continued shift in its business from physical to digital content distribution and shift to a greater share of its own theatrical releasing product, resulted in a workforce reduction and severance and a lease termination. The totalemployee related expense of $1,207 for$340. During the remainder of the fiscal year ended March 31, 2012 is reflected2013, the Company paid all of the amounts that were accrued as restructuring and transition expenses in the Company's consolidated statements of operations.September 30, 2012.
A summary of activity for restructuring activities included in accounts payable and accrued expenses is as follows: | | | | | | | | | | | | | | | | | | | | Balance at March 31, 2011 | | Total Cost | | Amounts Paid | | Balance at March 31, 2012 | | | $ | — |
| | $ | 1,207 |
| | $ | (254 | ) | | $ | 953 |
|
During the fiscal year ended March 31, 2011, the Company incurred $1,403 in transition costs principally associated with the retirement of our former CEO. | | | | | | | | | | | | | | | | Balance at March 31, 2012 | | Total Cost | | Amounts Paid/Adjusted | | Balance at March 31, 2013 | $ | 953 |
| | $ | 340 |
| | $ | (1,293 | ) | | $ | — |
|
| | 13. | RELATED PARTY TRANSACTIONS |
In August 2009, the Company hired Adam M. Mizel to be its Chief Financial Officer and Chief Strategy Officer. Mr. Mizel has been a member of the Company’s Board of Directors since March 2009 and is currently the Managing Principal of Aquifer Capital Group, LLC and the General Partner of the Aquifer Opportunity Fund, L.P., which is one of the Company's largest shareholders.
Pursuant to the 2010 Note, Sageview iswas entitled to designate two nominees for election to the Board at each annual meeting of the Company's stockholders, subject to the loss of such designation rights upon certain reductions in the aggregate principal amount outstanding of the 2010 Note and the beneficial ownership of shares of Class A Common Stock by Sageview. As discussed in Note 7, the 2010 Note was repaid in February 2013. Edward A. Gilhuly, anda principal of Sageview, resigned from the Company's Board of Directors in March 2013. Laura Nisonger Sims are the two current Sageview directors.remains as a director designated by Sageview.
The components of the benefit from income taxes for the fiscal year ended March 31, 2013 was as follows:
| | | | | | For the fiscal year ending March 31, | | 2013 | Federal: | | Deferred | $ | 4,731 |
| Total federal | 4,731 |
| | | State: | | Current | (75 | ) | Deferred | 288 |
| Total state | 213 |
| | | Total benefit from income taxes | $ | 4,944 |
|
The Company did not record any current or deferredrecognize income tax benefit from income taxes inor expense during the fiscal yearsyear ended March 31, 2012 and 2011.2012.
Net deferred tax liabilities consisted of the following: | | | As of March 31, | As of March 31, | | 2012 | | 2011 | 2013 | | 2012 | Deferred tax assets: | | | | | | | Net operating loss carryforwards | $ | 76,865 |
| | $ | 71,144 |
| $ | 99,342 |
| | $ | 88,077 |
| Stock based compensation | 4,024 |
| | 4,187 |
| 4,020 |
| | 4,024 |
| Revenue deferral | 129 |
| | 2,352 |
| 119 |
| | 129 |
| Interest rate swap | 743 |
| | 745 |
| 421 |
| | 743 |
| Capital loss carryforwards | 3,727 |
| | — |
| 3,734 |
| | 3,727 |
| Other | 175 |
| | 517 |
| 581 |
| | 182 |
| Total deferred tax assets before valuation allowance | 85,663 |
| | 78,945 |
| 108,217 |
| | 96,882 |
| Less: Valuation allowance | (53,257 | ) | | (47,700 | ) | (71,409 | ) | | (64,476 | ) | Total deferred tax assets after valuation allowance | $ | 32,406 |
| | $ | 31,245 |
| $ | 36,808 |
| | $ | 32,406 |
| Deferred tax liabilities: | |
| | |
| |
| | |
| Depreciation and amortization | $ | (32,104 | ) | | $ | (30,948 | ) | $ | (31,852 | ) | | $ | (32,104 | ) | Intangibles | (302 | ) | | (297 | ) | (4,956 | ) | | (302 | ) | Total deferred tax liabilities | (32,406 | ) | | (31,245 | ) | (36,808 | ) | | (32,406 | ) | Net deferred tax | $ | — |
| | $ | — |
| $ | — |
| | $ | — |
|
The Company has provided a valuation allowance equal to its net deferred tax assets for the fiscal years ended March 31, 20122013 and 20112012. The Company is required to recognize all or a portion of its deferred tax assets if it believes that it is more likely than not, given the weight of all available evidence, that all or a portion of its deferred tax assets will be realized. Management assesses the realizability of the deferred tax assets at each interim and annual balance sheet date based on actual and forecasted operating results. The Company assessed both its positive and negative evidence to determine the proper amount of its required valuation allowance. Factors considered include the Company's current taxable income and projections of future taxable income. Management increased the valuation allowance by $5,557$6,933 (net of the reduction described hereafter) and $7,543$5,557 during the fiscal years ended March 31, 2013 and 2012, respectively. A net deferred tax liability of $5,019 was recorded upon the New Video Acquisition for the excess of the financial statement basis over the tax basis of the acquired assets and liabilities. As New Video will be included in the Company's consolidated federal and state tax returns, deferred tax liabilities assumed in the New Video Acquisition are able to offset the reversal of the Company's pre-existing deferred tax assets. Accordingly, the Company's valuation allowance has been reduced by $5,019 and recorded as a deferred tax benefit in the accompanying consolidated statements of operations for the fiscal year ended March 31, 20122013 and 2011, respectively.. Management will continue to assess the realizability of the deferred tax assets at each interim and
annual balance sheet date based onupon actual and forecasted operating results.
At March 31, 20122013, the Company had Federal and state net operating loss carryforwards of approximately $200,000$254,000 available to reduce future taxable income. The federal net operating loss carryforwards will begin to expire in 2020. Under the provisions of the Internal Revenue Code, certain substantial changes in the Company's ownership may result in a limitation on the amount of net operating losses that may be utilized in future years. As of March 31, 20122013, approximately $6,300$6,300 of the Company's net operating loss from periods prior to November 2003 are subject to an annual Section 382 of the Internal Revenue Code of 1986, as amended ("Section 382") limitation of approximately $1,300,$1,300, and approximately $25,100$25,100 of net operating losses from periods prior to March 2006 are subject to an annual Section 382 limitation of approximately $9,400.$9,400. Net operating losses of approximately $164,600,$208,000, which were generated since March 2006 are currently not subject to an annual limitation under Section 382. Future significant ownership changes could cause a portion or all of these net operating losses to expire before utilization.
The differences between the United States statutory federal tax rate and the Company’s effective tax rate are as follows: | | | As of March 31, | As of March 31, | | 2012 | | 2011 | 2013 | | 2012 | Provision at the U.S. statutory federal tax rate | 34.0 | % | | 34.0 | % | 34.0 | % | | 34.0 | % | State income taxes, net of federal benefit | 0.6 |
| | 5.4 |
| 2.9 |
| | 0.6 |
| Change in valuation allowance | (44.2 | ) | | (32.9 | ) | (18.6 | ) | | (44.2 | ) | Disallowed interest | (6.7 | ) | | (3.7 | ) | (1.7 | ) | | (6.7 | ) | Non-deductible equity compensation | (4.3 | ) | | (1.6 | ) | (2.6 | ) | | (4.3 | ) | Sale of subsidiary | 21.2 |
| | — |
| 6.3 |
| | 21.2 |
| Other | (0.6 | ) | | (1.2 | ) | (1.3 | ) | | (0.6 | ) | Income tax (provision) benefit | — | % | | — | % | | Income tax benefit | | 19.0 | % | | — | % |
Since April 1, 2007, the Company has applied accounting principles that clarifiesclarify the accounting and disclosure for uncertainty in income taxes. As of March 31, 20122013 and 2011,2012, the Company did not have any uncertainties in income taxes.
The Company files income tax returns in the U.S. federal jurisdiction and various states. For federal income tax purposes, the Company’s fiscal 2010 through 20122013 tax years remain open for examination by the tax authorities under the normal three year statute of limitations. For state tax purposes, the Company’s fiscal 20082009 through 20122013 tax years generally remain open for examination by most of the tax authorities under a four year statute of limitations.
| | 15. | QUARTERLY FINANCIAL DATA (Unaudited) ($ in thousands, except for share and per share data) |
| | For the Fiscal Year Ended March 31, 2012 | 3/31/2012 |
| | 12/31/2011 | | 9/30/2011 | | 6/30/2011 | | For the Fiscal Year Ended March 31, 2013 | | 3/31/2013 |
| | 12/31/2012 |
| | 9/30/2012 |
| | 6/30/2012(3) | Revenues | $ | 17,695 |
| | $ | 19,793 |
| | $ | 21,028 |
| | $ | 18,041 |
| $ | 21,355 |
| | $ | 23,212 |
| | $ | 22,609 |
| | $ | 20,904 |
| Net loss from continuing operations (1) | $ | (5,526 | ) | | $ | (3,751 | ) | | $ | (662 | ) | | $ | (4,024 | ) | | Net (loss) income from continuing operations (1) | | $ | (16,328 | ) | | $ | (1,784 | ) | | $ | (2,621 | ) | | $ | 151 |
| Basic and diluted net loss per share from continuing operations(2) | $ | (0.15 | ) | | $ | (0.10 | ) | | $ | (0.02 | ) | | $ | (0.12 | ) | $(0.34) | | $(0.03) | | $(0.06) | | $0.00 | Shares used in computing basic and diluted net loss per share | 37,643,582 |
| | 37,620,287 |
| | 37,115,346 |
| | 32,632,563 |
| 48,320,257 |
| | 48,320,257 |
| | 48,299,715 |
| | 45,119,838 |
| | | | | | | | | | | | | | | | (1) Includes the following: | | | | | | | | | | | | | | | Change in fair value of interest rate swap related to the 2010 Term Loans (see Note 7) | $ | 171 |
| | $ | 597 |
| | $ | 219 |
| | $ | (787 | ) | | Debt prepayment fees | | $ | (3,725 | ) | | $ | — |
| | $ | — |
| | $ | — |
| Loss on extinguishment of notes payable | | $ | (7,905 | ) | | $ | — |
| | $ | — |
| | $ | — |
|
(2) Amount is calculated based upon net loss from continuing operations divided by shares used in computing basic and diluted net loss per share. The sum of net loss from continuing operations per fully diluted share across the table may not equal the fiscal year ended March 31, 2013 amount due to rounding. (3) As adjusted for the release of the income tax valuation allowance discussed further in Note 1.
| | | | | | | | | | | | | | | | | For the Fiscal Year Ended March 31, 2012 | 3/31/2012 |
| | 12/31/2011 | | 9/30/2011 | | 6/30/2011 | Revenues | $ | 17,695 |
| | $ | 19,793 |
| | $ | 21,028 |
| | $ | 18,041 |
| Net loss from continuing operations | $ | (5,526 | ) | | $ | (3,751 | ) | | $ | (662 | ) | | $ | (4,024 | ) | Basic and diluted net loss per share from continuing operations | $(0.15) | | $(0.10) | | $(0.02) | | $(0.12) | Shares used in computing basic and diluted net loss per share | 37,643,582 |
| | 37,620,287 |
| | 37,115,346 |
| | 32,632,563 |
|
| | | | | | | | | | | | | | | | | For the Fiscal Year Ended March 31, 2011 | 3/31/2011 |
| | 12/31/2010 | | 9/30/2010 | | 6/30/2010 | Revenues | $ | 15,361 |
| | $ | 16,087 |
| | $ | 13,380 |
| | $ | 13,611 |
| Net loss from continuing operations (1) | $ | (4,919 | ) | | $ | (2,399 | ) | | $ | (3,346 | ) | | $ | (10,957 | ) | Basic and diluted net loss per share from continuing operations | $ | (0.15 | ) | | $ | (0.08 | ) | | $ | (0.11 | ) | | $ | (0.37 | ) | Shares used in computing basic and diluted net loss per share | 32,144,731 |
| | 31,330,641 |
| | 30,294,306 |
| | 29,421,168 |
| | | | | | | | | (1) Includes the following: | | | | | | | | Loss on extinguishment of debt related to the GE Credit Facility (see Note 7) | $ | — |
| | $ | — |
| | $ | — |
| | $ | (4,448 | ) | Change in fair value of interest rate swap related to the 2010 Term Loans (see Note 7) | $ | (199 | ) | | $ | 318 |
| | $ | (987 | ) | | $ | (458 | ) | Change in fair value of warrant liability related to the Sageview Warrants (see Note 7) | $ | — |
| | $ | — |
| | $ | (1,891 | ) | | $ | 5,033 |
|
| | 16. | VALUATION AND QUALIFYING ACCOUNTS |
| | Allowance for doubtful accounts (2) | Balance at Beginning of Year | | Bad Debt Expense | | Deductions (1) | | Balance at End of Year | Balance at Beginning of Year | | Bad Debt Expense | | Deductions (1) | | Balance at End of Year | For the Fiscal Year Ended March 31, 2013 | | $ | 257 |
| | $ | 490 |
| | $ | (48 | ) | | $ | 699 |
| For the Fiscal Year Ended March 31, 2012 | $ | 73 |
| | $ | 459 |
| | $ | (275 | ) | | $ | 257 |
| $ | 73 |
| | $ | 459 |
| | $ | (275 | ) | | $ | 257 |
| For the Fiscal Year Ended March 31, 2011 | $ | 118 |
| | $ | 144 |
| | $ | (189 | ) | | $ | 73 |
| |
| | (1) | Represents write-offs of specific accounts receivable. |
| | (2) | Excludes discontinued operations. |
On April 19, 2012, the Company entered into an underwriting agreement (the “First Underwriting Agreement”) with B. Riley & Co., LLC (“B. Riley”) pursuant to which B. Riley agreed to act as underwriter of 3,885,004 shares of the Company’s Class A common stock being offered, and on April 20, 2012, the Company entered into an underwriting agreement (the “Second Underwriting Agreement” and, together with the First Underwriting Agreement, the “Underwriting Agreements”) with B. Riley as Representative of the several underwriters (the “Underwriters”), pursuant to which the Underwriters agreed to act as underwriters of an additional 3,257,853 shares of the Company’s Class A common stock being offered. The securities, consisting of a total of 7,142,857 shares, were offered by the Company pursuant to a shelf registration statement on Form S-3 declared effective by the Securities and Exchange Commission on April 9, 2012 (File No. 333-179970) and an applicable prospectus supplement (the “Underwritten Offering”). Pursuant to the Underwriting Agreements and subject to the terms and conditions expressed therein (i) the Underwriters offered such securities to the public at the public offering price of $1.40 and (ii) the Company agreed to sell these securities to the Underwriters at a purchase price equal to $1.316 per share, representing a per security discount equal to 6 percent of the public offering price per security, provided that, with respect to the shares sold pursuant to the First Underwriting Agreement, the discount also included an aggregate amount equal to $100,000. At the Underwriters’ discretion, the Underwriters had a 30 day option to buy up to an additional 714,286 shares from the Company at the public offering price less the underwriting discounts and commissions to cover these sales. On April 23, 2012, the Underwriters exercised the entire over-allotment option. The Company also agreed to bear the expenses of the Underwritten Offering. The closing of the Underwritten Offering occurred on April 25, 2012, resulting in net proceeds to the Company of $10.2 million.
On April 19, 2012, the Company entered into a stock purchase agreement for the purchase of all of the issued and outstanding capital stock of New Video Group, Inc. (“New Video”), an independent home entertainment distributor of quality packaged and digital content that provides distribution services in the DVD, BD, Digital and VOD channels for more than 500 independent rights holders (the “New Video Acquisition”). The Company agreed to pay $10.0 million in cash and 2,525,417 shares of Class A common stock, subject to certain transfer restrictions, plus up to an additional $6.0 million in cash or Class A common stock, at the Company’s discretion, if certain business unit financial performance targets are met in 2013, 2014 and 2015. In addition,
the Company has agreed to register the resale of the shares of Class A common stock paid as part of the purchase price. The New Video Acquisition was consummated on April 20, 2012. The Company is currently in the process of determining the fair value of assets acquired and liabilities assumed. Merger and acquisition expenses, consisting primarily of professional fees, directly related to the acquisition of New Video totaled $1.7 million, of which $1.1 million was incurred subsequent to March 31, 2012.
In connection with the purchase of New Video, the Company's consent and control agreement with a bank was terminated, thereby releasing cash proceeds partially used for the New Video Acquisition.
On April 26, 2012, the holder of 25,000 shares of the Company's Class B common stock converted all of the Class B shares into 25,000 Class A common stock shares. Accordingly, the Company no longer has any Class B common stock outstanding.
PART II. OTHER INFORMATION
| | ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
None.
| | ITEM 9A. | CONTROLS AND PROCEDURES |
As of the end of the period covered by this report, we conducted an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15 and 15d-15 of the Securities Exchange Act of 1934 (the “Exchange Act”)). Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Management's Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is identified in Exchange Act Rules 13a-15(f). Internal control over financial reporting is a process designed by, or under the supervision of, our Principal Executive Officer or Chief Executive Officer and Principal Financial & Accounting Officer or Chief Financial Officer, and effected by the Board of Directors, management, and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. A company’scompany's control over financial reporting includes those policies and procedures that:
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect our transactions and dispositions of the assets of the company; provide reasonable assurance that our transactions are recorded as necessary to permit preparation of our financial statements in accordance with accounting principles generally accepted in the United States of America, and that our receipts and expenditures of the company are being made only in accordance with authorizations of our management and our directors of the company; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’scompany's assets that could have a material effect on the financial statements.
Internal control over financial reporting has inherent limitations which may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or because the level of compliance with related policies or procedures may deteriorate.
In making the assessment, management used the framework in “Internal Control –Integrated-Integrated Framework” promulgated by the Committee of Sponsoring Organizations of the Treadway Commission, commonly referred to as the “COSO” criteria. Based on that assessment, our Principal Executive Officer and Principal Financial & Accounting Officer concluded that our internal controls over financial reporting were effective as of March 31, 20122013. This annual report on Form 10-K does not include an attestation report of the Company’sCompany's registered public accounting firm regarding internal control over financial reporting.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting, identified in connection with the evaluation required by paragraph (d) of the Exchange Act, that occurred during this fiscal quarter ended March 31, 20122013, has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
| | ITEM 9B. | OTHER INFORMATION |
None.
PART III
| | ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Except as set forth below, the information required by this item will appear in Cinedigm’s Proxy Statement for our 20122013 Annual Meeting of Stockholders to be held on or about September 12, 20122013, which will be filed pursuant to Regulation 14A under the Exchange Act and is incorporated by reference in this report pursuant to General Instruction G(3) of Form 10-K (other than the portions thereof not deemed to be “filed” for the purpose of Section 18 of the Exchange Act).
Code of Ethics
We have adopted a code of ethics applicable to all members of the Board, executive officers and employees. Such code of ethics is available on our Internet website, www.cinedigmcorp.com.www.cinedigm.com. We intend to disclose any amendment to, or waiver of, a provision of our code of ethics by filing a Form 8-K with the SEC.
| | ITEM 11. | EXECUTIVE COMPENSATION |
ITEM 11. EXECUTIVE COMPENSATION
Information required by this item will appear in Cinedigm’s Proxy Statement and is incorporated by reference in this report pursuant to General Instruction G(3) of Form 10-K (other than the portions thereof not deemed to be “filed” for the purpose of Section 18 of the Exchange Act).
| | ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS |
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS
Information required by this item will appear in Cinedigm’s Proxy Statement and is incorporated by reference in this report pursuant to General Instruction G(3) of Form 10-K (other than the portions thereof not deemed to be “filed” for the purpose of Section 18 of the Exchange Act).
| | ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS |
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this item will appear in Cinedigm’s Proxy Statement and is incorporated by reference in this report pursuant to General Instruction G(3) of Form 10-K (other than the portions thereof not deemed to be “filed” for the purpose of Section 18 of the Exchange Act).
| | ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES |
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information required by this item will appear in Cinedigm’s Proxy Statement and is incorporated by reference in this report pursuant to General Instruction G(3) of Form 10-K (other than the portions thereof not deemed to be “filed” for the purpose of Section 18 of the Exchange Act).
PART IV
| | ITEM 15. | EXHIBITS, FINANCIAL STATEMENT SCHEDULES |
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a)(1) Financial Statements See Index to Financial Statements on page 4140 herein.
(a)(2) Financial Statement Schedules None.
(a)(3) Exhibits The exhibits are listed in the Exhibit Index beginning on page 4746 herein.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
CINEDIGM DIGITAL CINEMA CORP.
| | | | | | | | | Date: | June 15, 201219, 2013 | By: | /s/ Christopher J. McGurk | | | | Christopher J. McGurk Chief Executive Officer and Chairman of the Board of Directors (Principal Executive Officer) | | | | | | | | | Date: | June 15, 201219, 2013 | By: | /s/ Adam M. Mizel | | | | Adam M. Mizel Chief Operating Officer, Chief Financial Officer and Director (Principal Financial Officer) | | | | | | | | | Date: | June 15, 201219, 2013 | By: | /s/ John B. Brownson | | | | John B. Brownson Senior Vice President – Accounting & Finance (Principal Accounting Officer) | | | | |
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature appears below hereby constitutes and appoints Christopher J. McGurk and Gary S. Loffredo, and each of them individually, his or her true and lawful agent, proxy and attorney-in-fact, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to (i) act on, sign and file with the Securities and Exchange Commission any and all amendments to this Report together with all schedules and exhibits thereto, (ii) act on, sign and file with the Securities and Exchange Commission any and all exhibits to this Report and any and all exhibits and schedules thereto, (iii) act on, sign and file any and all such certificates, notices, communications, reports, instruments, agreements and other documents as may be necessary or appropriate in connection therewith and (iv) take any and all such actions which may be necessary or appropriate in connection therewith, granting unto such agents, proxies and attorneys-in-fact, and each of them individually, full power and authority to do and perform each and every act and thing necessary or appropriate to be done, as fully for all intents and purposes as he or she might or could do in person, and hereby approving, ratifying and confirming all that such agents, proxies and attorneys-in-fact, any of them or any of his, her or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| | | | | | SIGNATURE(S)SIGNATURES(S) | | TITLE(S) | | DATE | | | | | | /s/ Christopher J. McGurk | | Chief Executive Officer | | June 15, 201219, 2013 | Christopher J. McGurk | | and Chairman of the Board of Directors | | | | | (Principal Executive Officer) | | | | | | | | | | | /s/ Adam M. Mizel | | Chief Operating Officer, Chief Financial Officer and | | June 15, 201219, 2013 | Adam M. Mizel | | Director (Principal Financial Officer) | | | | | | | | | | | /s/ Gary S. Loffredo | | President of Digital Cinema, General Counsel, | | June 15, 201219, 2013 | Gary S. Loffredo | | Secretary and Director | | | | | | | | | | | | | | /s/ John B. Brownson | | Senior Vice President - Accounting and Finance | | June 15, 201219, 2013 | John B. Brownson | | (Principal Accounting Officer) | | | | | | | | | | | /s/ Peter C. Brown | | Director | | June 15, 201219, 2013 | Peter C. Brown | | | | | | | | | | | | | /s/ Wayne L. Clevenger | | Director | | June 15, 201219, 2013 | Wayne L. Clevenger | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | /s/ Matthew W. Finlay | | Director | | June 15, 201219, 2013 | Matthew W. Finlay | | | | | | | | | | | | | /s/ Edward A. GilhulyMartin B. O'Connor II | | Director | | June 15, 201219, 2013 | Edward A. GilhulyMartin B. O'Connor II | | | | | | | | | | | | /s/ Martin B. O’Connor II | | Director | June 15, 2012 | Martin B. O’Connor II | | | | | | | | | | | | /s/ Laura Nisonger Sims | | Director | | June 15, 201219, 2013 | Laura Nisonger Sims | | | | | | | | | |
EXHIBIT INDEX
| | | | Exhibit Number | | Description of Document |
| | | | 2.1 | ‑‑ | Securities Purchase Agreement, dated as of August 11, 2009, by and among the Company and the Purchaser. (16)(11) | 2.1.1 | ‑‑ | Amendment and Waiver, dated as of November 4, 2009, to Securities Purchase Agreement by and among the Company, the Subsidiary Note Parties party thereto and Sageview Capital Master, L.P., as Collateral Agent. (17)(12) | 2.1.2 | ‑‑ | Amendment and Restatement Agreement, dated as of May 6, 2010, between Cinedigm Digital Cinema Corp. and Sageview Capital Master L.P. (18)(13) | 2.2 | ‑‑ | Common Stock Purchase Agreement among Cinedigm Digital Cinema Corp. and the Investors party thereto dated July 5, 2011. (29)(24) | 2.3 | ‑‑ | Stock Purchase Agreement, dated as of April 19, 2012, by and among the Company, Steve Savage, Susan Margolin and Aimee Connolly. (30)(25) (Specific portions of this agreement have been omitted and have been filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment in accordance with Rule 24B-2 under the Securities Exchange Act of 1934.) | 3.1 | ‑‑ | Fourth Amended and Restated Certificate of Incorporation of the Company, as amended. (17)(29) | 3.2 | ‑‑ | Bylaws of the Company. (23)(18) | 3.2.1 | ‑‑ | Amendment No. 1 to Bylaws of the Company. (24)(19) | 4.1 | ‑‑ | Specimen certificate representing Class A common stock. (1) | 4.2 | ‑‑ | Specimen certificate representing Series A Preferred Stock. (14)(10) | 4.3 | ‑‑ | FormLimited Recourse Pledge Agreement, dated as of Warrant issuedFebruary 28, 2013, made by Cinedigm Digital Cinema Corp. in connection with the Series A Preferred Stock. (15)favor of Prospect Capital Corporation, as Collateral Agent. (30) | 4.4 | ‑‑ | Guaranty, Pledge and Security Agreement, dated as of February 28, 2013, made by Cinedigm DC Holdings, LLC, Access Digital Media, Inc. and Access Digital Cinema Phase 2, Corp., in favor of Prospect Capital Corporation, as Collateral Agent. (30) | 4.5 | ‑‑ | Limited Recourse Guaranty Agreement, dated as of February 28, 2013, made by Cinedigm Digital Cinema Corp. in favor of Prospect Capital Corporation, as Collateral Agent and as Administrative Agent. (35) | 4.9 | ‑‑ | Tax Benefit Preservation Plan, dated as of August 10, 2009, between the Company and American Stock Transfer & Trust Company, as Rights Agent. (19)(14) | 4.10 | ‑‑ | Note issued to the Purchaser pursuant to the Securities Purchase Agreement, dated August 11, 2009, by and among the Company and the Purchaser. (16) | 4.10.1 | ‑‑ | Amended and Restated Note issued to Sageview Capital Master L.P. by Cinedigm Digital Cinema Corp. dated May 6, 2010. (18)(13) | 4.11 | ‑‑ | Form of Warrant issued to the Purchaser pursuant to the Securities Purchase Agreement, dated August 11, 2009, by and among the Company and the Purchaser. (16)Sageview Capital Master L.P. (11) | 4.12 | ‑‑ | Registration Rights Agreement, dated as of August 11, 2009, by and among the Company and the Purchaser. (16) | 4.14 | ‑‑ | Registration Rights Agreement, dated as of August 11, 2009, by and among the Company and ImperialSageview Capital LLC. (16)Master L.P. (11) | 4.16 | ‑‑ | Guaranty and Security Agreement, dated as of May 6, 2010, among Cinedigm Digital Funding I, LLC and each Grantor from time to time party thereto and General Electric Capital Corporation, as Collateral Agent. (18)(13) | 4.16.1 | ‑‑ | Amended and Restated Guaranty and Security Agreement, dated as of February 28, 2013, among Cinedigm Digital Funding I, LLC and each Grantor from time to time party thereto and Société Générale, New York Branch, as Collateral Agent. (30) | 4.17 | ‑‑ | Pledge Agreement, dated as of May 6, 2010, between Access Digital Media, Inc. and General Electric Capital Corporation, as Collateral Agent. (18)(13) | 4.17.1 | ‑‑ | Amended and Restated Pledge Agreement, dated as of February 28, 2013, between Access Digital Media, Inc. and Société Générale, New York Branch, as Collateral Agent. (30) | 4.18 | ‑‑ | Pledge Agreement, dated as of May 6, 2010, between Christie/AIX, Inc. and General Electric Capital Corporation, as Collateral Agent. (18)(13) | 4.18.1 | ‑‑ | Amended and Restated Pledge Agreement, dated as of February 28, 2013, between Christie/AIX, Inc. and Société Générale, New York Branch, as Collateral Agent. (30) | 4.19 | ‑‑ | Registration Rights Agreement among Cinedigm Digital Cinema Corp. and the Investors party thereto dated July 7, 2011. (29)(24) |
| | | | 4.20 | ‑‑ | Guaranty and Security Agreement, dated as of October 18, 2011, among Cinedigm Digital Funding 2, LLC, each Grantor from time to time party thereto and Société Générale, New York Branch, as Collateral Agent. (31)(26) | 4.21 | ‑‑ | Security Agreement, dated as of October 18, 2011, between CHG-MERIDIAN U.S. Finance, Ltd. And Société Générale, New York Branch, as Collateral Agent. (31)(26) | 4.22 | ‑‑ | Security Agreement, dated as of October 18, 2011, among CDF2 Holdings, LLC and each Grantor from time to time party thereto and Société Générale, New York Branch, as Collateral Agent for the Lenders and each other Secured Party. (31)(26) | 4.23 | ‑‑ | Security Agreement, dated as of October 18, 2011, among CDF2 Holdings, LLC and each Grantor from time to time party thereto and Société Générale, New York Branch, as Collateral Agent for CHG-Meridian U.S. Finance, Ltd. And any other CHG Lease Participants. (31)(26) | 4.24 | ‑‑ | Pledge Agreement, dated as of October 18, 2011, between Access Digital Cinema Phase 2 Corp. and Société Générale, as Collateral Agent. (31) |
| | | | Exhibit Number | | Description of Document(26) | 4.25 | ‑‑ | Pledge Agreement, dated as of October 18, 2011, between CDF2 Holdings, LLC and Société Générale, as Collateral Agent. (31)(26) | 10.1 | ‑‑ | Separation Agreement between Cinedigm Digital Cinema Corp. and A. Dale Mayo dated as of June 22, 2010. (25)(20) | 10.2 | ‑‑ | Employment Agreement between the Company and Adam M. Mizel, dated as of August 11, 2009. (16) | 10.2.1 | ‑‑ | Employment Agreement between Cinedigm Digital Cinema Corp. and Adam M. Mizel dated as of October 19, 2011. (32)(27) | 10.3 | ‑‑ | Second Amended and Restated 2000 Equity Incentive Plan of the Company. (10)(6) | 10.3.1 | ‑‑ | Amendment dated May 9, 2008 to the Second Amended and Restated 2000 Equity Incentive Plan of the Company. (12)(8) | 10.3.2 | ‑‑ | Form of Notice of Restricted Stock Award. (10)(6) | 10.3.3 | ‑‑ | Form of Non-Qualified Stock Option Agreement. (11)(7) | 10.3.4 | ‑‑ | Form of Restricted Stock Unit Agreement (employees). (12)(8) | 10.3.5 | ‑‑ | Form of Stock Option Agreement. (4)(3) | 10.3.6 | ‑‑ | Form of Restricted Stock Unit Agreement (directors). (12)(8) | 10.3.7 | ‑‑ | Amendment No. 2 dated September 4, 2008 to the Second Amended and Restated 2000 Equity Incentive Plan of the Company. (13)(9) | 10.3.8 | ‑‑ | Amendment No. 3 dated September 30, 2009 to the Second Amended and Restated 2000 Equity Incentive Plan of the Company. (20)(15) | 10.3.9 | ‑‑ | Amendment No. 4 dated September 14, 2010 to the Second Amended and Restated 2000 Equity Incentive Plan of the Company. (26)(21) | 10.3.10 | ‑‑ | Amendment No. 5 dated April 20, 2012 to the Second Amended and Restated 2000 Equity Incentive Plan of the Company. (30)(25) | 10.3.11 | ‑‑ | Amendment No. 6 dated September 12, 2012 to the Second Amended and Restated 2000 Equity Incentive Plan of the Company. (28) | 10.4 | ‑‑ | Cinedigm Digital Cinema Corp. Management Incentive Award Plan. (21)(16) | 10.5 | ‑‑ | Form of Indemnification Agreement for non-employee directors. (22)(17) | 10.6 | ‑‑ | Lease Agreement, dated as of March 10, 2005, between the Company and 55 Madison Avenue Associates, LLC. (28)(23) | 10.6.1 | ‑‑ | First Lease Extension Agreement dated as of January 16, 2009, between the Company and 55 Madison Avenue Associates, LLC. (28)
(23) | 10.7 | ‑‑ | Agreement of Lease, dated as of July 18, 2000, between the Company and 1-10 Industry Associates, LLC. (2) | 10.8 | ‑‑ | Agreement of Lease, dated as of January 18, 2000, between the Company (by assignment from BridgePoint International (Canada), Inc.) and 75 Broad, LLC. (2) | 10.8.1 | ‑‑ | Additional Space and Lease Modification to the Agreement of Lease, dated as of January 18, 2000, between the Company (by assignment from BridgePoint International (Canada), Inc.) and 75 Broad, LLC dated May 16, 2000. (2)
| 10.8.2 | ‑‑ | Second Additional Space and Lease Modification to the Agreement of Lease, dated as of January 18, 2000, between the Company (by assignment from BridgePoint International (Canada), Inc.) and 75 Broad, LLC dated August 15, 2000. (2)
| 10.9 | ‑‑ | Confidentiality, Inventions and Noncompete Agreement, dated as of January 9, 2004, between the Company and Erik B. Levitt. (3) | 10.10 | ‑‑ | Lease Agreement, dated as of August 9, 2002, by and between OLP Brooklyn Pavilion LLC and Pritchard Square Cinema LLC. (8)(5) | 10.10.1 | ‑‑ | First Amendment to Contract of Sale and Lease Agreement, dated as of August 9, 2002, by and among Pritchard Square LLC, OLP Brooklyn Pavilion LLC and Pritchard Square Cinema, LLC. (8)(5) | 10.10.2 | ‑‑ | Second Amendment to Contract of Sale and Lease Agreement, dated as of April 2, 2003, by and among Pritchard Square LLC, OLP Brooklyn Pavilion LLC and Pritchard Square Cinema, LLC. (8)(5) | 10.10.3 | ‑‑ | Third Amendment to Contract of Sale and Lease Agreement, dated as of November 1, 2003, by and among Pritchard Square LLC, OLP Brooklyn Pavilion LLC and Pritchard Square Cinema, LLC. (8)(5) | 10.10.4 | ‑‑ | Fourth Amendment to Lease Agreement, dated as of February 11, 2005, between ADM Cinema Corporation and OLP Brooklyn Pavilion LLC. (4) |
| | | | 10.11 | ‑‑ | Employment Agreement between Cinedigm Digital Cinema Corp. and Gary S. Loffredo dated as of October 19, 2011. (32) |
| | | | Exhibit Number | | Description of Document(27) | 10.12 | ‑‑ | Amended and Restated Digital Cinema Framework Agreement, dated as of September 30, 2005, by and among Access Digital Media, Inc., Christie/AIX, Inc. and Christie Digital Systems USA, Inc. (6) (Confidential treatment granted under Rule 24b-2 as to certain portions which are omitted and filed separately with the SEC.) | 10.13 | ‑‑ | Digital Cinema Deployment Agreement, dated September 14, 2005, by and among Buena Vista Pictures Distribution, Christie/AIX, Inc. and Christie Digital Systems USA, Inc. (6) (Confidential treatment granted under Rule 24b-2 as to certain portions which are omitted and filed separately with the SEC.) | 10.14 | ‑‑ | Digital Cinema Deployment Agreement, dated October 12, 2005, by and between Twentieth Century Fox Film Corporation and Christie/AIX, Inc. (6) (Confidential treatment granted under Rule 24b-2 as to certain portions which are omitted and filed separately with the SEC.) | 10.15 | ‑‑ | Digital Cinema Agreement, dated as of October 20, 2005, by and between Universal City Studios, LLP and Christie/AIX, Inc. (7) (Confidential treatment granted under Rule 24b-2 as to certain portions which are omitted and filed separately with the SEC.) | 10.16 | ‑‑ | Master License Agreement, dated as of December, 2005, by and between Christie/AIX, Inc. and Carmike Cinemas, Inc. (7) (Confidential treatment granted under Rule 24b-2 as to certain portions which are omitted and filed separately with the SEC.) | 10.17 | ‑‑ | Amended and Restated Digital System Supply Agreement, dated September 30, 2005, by and between Christie Digital Systems USA, Inc. and Christie/AIX, Inc. (9) (Confidential treatment granted under Rule 24b-2 as to certain portions which are omitted and filed separately with the SEC.) | 10.17.1 | ‑‑ | Letter Agreement amending the Amended and Restated Digital System SupplyTerm Loan Agreement, dated as of February 21, 2006,28, 2013, by and between Christieamong Cinedigm DC Holdings, LLC, Access Digital Systems USA,Media, Inc., Access Digital Phase 2, Corp., the Guarantors party thereto, the Lenders party thereto and Christie/AIX, Inc. (9) (Confidential treatment granted under Rule 24b-2Prospect Capital Corporation as to certainAdministrative Agent and Collateral Agent. (30) (Specific portions which areof this agreement have been omitted and have been filed separately with the SEC.) | 10.17.2 | ‑‑ | Letter Agreement amendingSecurities and Exchange Commission pursuant to a request for confidential treatment in accordance with Rule 24B-2 under the Amended and Restated Digital System Supply Agreement, entered into on November 2, 2006, by and between Christie Digital Systems USA, Inc. and Christie/AIX, Inc. (9) (Confidential treatment granted under Rule 24b-2 as to certain portions which are omitted and filed separately with the SEC.Securities Exchange Act of 1934.) | 10.19 | ‑‑ | Guarantee and Collateral Agreement, dated as of August 11, 2009, by and among the Company, the PurchaserSageview Capital Master L.P. and the Guarantors. (16)(11) | 10.20 | ‑‑ | Credit Agreement, dated as of May 6, 2010, among Cinedigm Digital Funding I, LLC, the Lenders party thereto and Société Générale, New York Branch, as co-administrative agent and paying agent for the lenders party thereto, and General Electric Capital Corporation, as co-administrative agent and collateral agent for the lenders and secured parties thereto. (18)(13) | 10.20.1 | ‑‑ | Amended and Restated Credit Agreement, dated as of February 28, 2013, among Cinedigm Digital Funding I, LLC, the Lenders party thereto and Société Générale, New York Branch, as administrative agent and collateral agent for the lenders and secured parties thereto. (30) | 10.21.1 | ‑‑ | 2002 ISDA Master Agreement between Natixis and Cinedigm Digital Funding I, LLC dated as of June 7, 2010. (27)(22) | 10.21.2 | ‑‑ | Schedule to the 2002 ISDA Master Agreement between Natixis and Cinedigm Digital Funding I, LLC dated as of June 7, 2010. (27)(22) | 10.21.3 | ‑‑ | Swap Transaction Confirmation from Natixis to Cinedigm Digital Funding I, LLC dated as of June 14, 2010. (27)(22) | 10.22.1 | ‑‑ | 2002 ISDA Master Agreement between HSBC Bank USA and Cinedigm Digital Funding I, LLC dated as of July 20, 2010. (27)(22) | 10.22.2 | ‑‑ | Schedule to the 2002 ISDA Master Agreement between HSBC Bank USA and Cinedigm Digital Funding I, LLC dated as of July 20, 2010. (27)(22) | 10.22.3 | ‑‑ | Swap Transaction Confirmation from HSBC Bank USA to Cinedigm Digital Funding I, LLC dated as of June 8, 2010. (27)(22) | 10.23.1 | ‑‑ | 2002 ISDA Master Agreement between Société Générale and Cinedigm Digital Funding I, LLC dated as of May 28, 2010. (27)(22) | 10.23.2 | ‑‑ | Schedule to the 2002 ISDA Master Agreement between Société Générale and Cinedigm Digital Funding I, LLC dated as of June 7, 2010. (27)(22) | 10.23.3 | ‑‑ | Swap Transaction Confirmation from Société Générale to Cinedigm Digital Funding I, LLC dated as of June 7, 2010. (27) | 10.24 | ‑‑ | Severance Agreement between Cinedigm Digital Cinema Corp. and Charles Goldwater, dated as of September 10, 2010. (26) |
| | | | Exhibit Number | | Description of Document | 10.25 | ‑‑ | Severance Agreement between Cinedigm Digital Cinema Corp. and Gary S. Loffredo, dated as of September 10, 2010. (26)(22) | 10.26 | ‑‑ | Employment Agreement between Cinedigm Digital Cinema Corp. and Christopher J. McGurk dated as of December 23, 2010. (24)(19) | 10.27 | ‑‑ | Stock Option Agreement between Cinedigm Digital Cinema Corp. and Christopher J. McGurk dated as of December 23, 2010. (24)(19) | 10.28 | ‑‑ | Credit Agreement, dated as of October 18, 2011, among Cinedigm Digital Funding 2, LLC, as the Borrower, Société Générale, New York Branch, as Administrative Agent and Collateral Agent, Natixis New York Branch, as Syndication Agent and the Lenders party thereto. (31)(26) | 10.29 | ‑‑ | Multiparty Agreement, dated as of October 18, 2011, among Cinedigm Digital Funding 2, LLC, as Borrower, Access Digital Cinema Phase 2, Corp., CDF2 Holdings, LLC, Cinedigm Digital Cinema Corp., CHG-MERIDIAN U.S. Finance, Ltd., Société Générale, New York Branch, as Senior Agent and Ballantyne Strong, Inc., as Approved Vendor. (31)(26) | 10.30 | ‑‑ | Master Equipment Lease No. 8463, effective as of October 18, 2011, by and between CHG- MERIDIAN U.S. Finance, Ltd. and CDF2 Holdings, LLC. (31)(26) | 10.31 | ‑‑ | Master Equipment Lease No. 8465, effective as of October 18, 2011, by and between CHG-MERIDIAN U.S. Finance, Ltd. and CDF2 Holdings, LLC. (31)(26) | 10.32 | ‑‑ | Sale and Leaseback Agreement, dated as of October 18, 2011, by and between CDF2 Holdings, LLC and CHG-MERIDIAN U.S. Finance, Ltd. (31)(26) | 10.33 | ‑‑ | Sale and Contribution Agreement, dated as of October 18, 2011, among Cinedigm Digital Cinema Corp., Access Digital Cinema Phase 2, Corp., CDF2 Holdings, LLC and Cinedigm Digital Funding 2, LLC. (31)(26) | 21.1 | ‑‑ | List of Subsidiaries.* | 23.1 | ‑‑ | Consent of EisnerAmper LLP.* | 24.1 | ‑‑ | Powers of Attorney.* (Contained on signature page) |
| | | | 31.1 | ‑‑ | Officer's Certificate Pursuant to 15 U.S.C. Section 7241, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.* | 31.2 | ‑‑ | Officer's Certificate Pursuant to 15 U.S.C. Section 7241, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.* | 31.3 | ‑‑ | Officer's Certificate Pursuant to 15 U.S.C. Section 7241, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.* | 32.1 | ‑‑ | Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* | 32.2 | ‑‑ | Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* | 32.3 | ‑‑ | Certification of Chief Accounting Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* | 101.INS | ‑‑ | XBRL Instance Document.* | 101.SCH | ‑‑ | XBRL Taxonomy Extension Schema.* | 101.CAL | ‑‑ | XBRL Taxonomy Extension Calculation.* | 101.DEF | ‑‑ | XBRL Taxonomy Extension Definition.* | 101.LAB | ‑‑ | XBRL Taxonomy Extension Label.* | 101.PRE | ‑‑ | XBRL Taxonomy Extension Presentation.* |
* Filed herewith. Documents Incorporated Herein by Reference: (1) Previously filed with the Securities and Exchange Commission on November 4, 2003 as an exhibit to the Company's Amendment No. 3 to Registration Statement on Form SB-2 (File No. 333-107711).
(2) Previously filed with the Securities and Exchange Commission on August 6, 2003 as an exhibit to the Company's Registration Statement on Form SB-2 (File No. 333-107711).
(3) Previously filed with the Securities and Exchange Commission on February 17, 2004 as an exhibit to the Company's Form 10-QSB for the quarter ended December 31, 2003 (File No. 001-31810).
(4) Previously filed with the Securities and Exchange Commission on April 25, 2005 as an exhibit to the Company's
Registration Statement on Form S-8 (File No. 333-124290).
(5)(4) Previously filed with the Securities and Exchanged Commission on April 29, 2005 as an exhibit to the Company's Form 8- K (File No. 001-31810).
(6) Previously filed with the Securities and Exchange Commission on November 14, 2005 as an exhibit to the Company's Form 10-QSB for the quarter ended September 30, 2005 (File No. 001-31810).
(7) Previously filed with the Securities and Exchange Commission on February 13, 2006 as an exhibit to the Company's Form 10-QSB (File No. 001-31810).
(8)(5) Previously filed with the Securities and Exchange Commission on June 29, 2006 as an exhibit to the Company's Form 10- KSB for the fiscal year ended March 31, 2006 (File No. 001-31810).
(9) Previously filed with the Securities and Exchange Commission on November 8, 2006 as an exhibit to the Company's Form 8-K (File No. 000-51910).
(10)(6) Previously filed with the Securities and Exchange Commission on September 24, 2007 as an exhibit to the Company's Form 8-K (File No. 000-51910).
(11)(7) Previously filed with the Securities and Exchange Commission on April 3, 2008 as an exhibit to the Company's Form 8-K (File No. 000-51910).
(12)(8) Previously filed with the Securities and Exchange Commission on May 14, 2008 as an exhibit to the Company's Form 8-K (File No. 000-51910).
(13)(9) Previously filed with the Securities and Exchange Commission on February 9, 2009September 10, 2008 as an exhibit to the Company's Form 10-Q for the quarter ended December 31, 20088-K (File No. 000-51910).
(14)(10) Previously filed with the Securities and Exchange Commission on February 9, 2009 as an exhibit to the Company's Form 8-K (File No. 000-51910).
(15) Previously filed with the Securities and Exchange Commission on February 13, 2009 as an exhibit to the Company's Form 8-K (File No. 000-51910).
(16)(11) Previously filed with the Securities and Exchange Commission on August 13, 2009 as an exhibit to the Company's Form 8-K (File No. 001-31810).
(17)(12) Previously filed with the Securities and Exchange Commission on November 13, 2009 as an exhibit to the Company's Form 10-Q for the quarter ended September 30, 2009 (File No. 001-31810).
(18)(13) Previously filed with the Securities and Exchange Commission on May 11, 2010 as an exhibit to the Company's Form 8-K (File No. 001-31810).
(19)(14) Previously filed with the Securities and Exchange Commission on August 12, 2009 as an exhibit to the Company's Form 8-K (File No. 001-31810).
(20)(15) Previously filed with the Securities and Exchange Commission on October 6, 2009 as an exhibit to the Company's Form 8-K (File No. 001-31810).
(21)(16) Previously filed with the Securities and Exchange Commission on October 27, 2009 as an exhibit to the Company's Form 8-K (File No. 001-31810).
(22)(17) Previously filed with the Securities and Exchange Commission on September 21, 2009 as an exhibit to the Company's Form 8-K (File No. 001-31810)
(23)(18) Previously filed with the Securities and Exchange Commission on February 10, 2011 as an exhibit to the Company's Form 10-Q for the quarter ended December 31, 2010 (File No. 001-31810).
(24)(19) Previously filed with the Securities and Exchange Commission on January 3, 2011 as an exhibit to the Company's Form 8-K (File No. 001-31810).
(25)(20) Previously filed with the Securities and Exchange Commission on June 25, 2010 as an exhibit to the Company's Form 8-K (File No. 001-31810).
(26)(21) Previously filed with the Securities and Exchange Commission on September 16, 2010 as an exhibit to the Company's Form 8-K (File No. 001-31810).
(27)(22) Previously filed with the Securities and Exchange Commission on August 13, 2010 as an exhibit to the Company's Form 10-Q for the quarter ended June 30, 2010 (File No. 001-31810).
(28)(23) Previously filed with the Securities and Exchange Commission on June 14, 2010 as an exhibit to the Company's Form 10-K (File No. 001-31810).
(29)(24) Previously filed with the Securities and Exchange Commission on July 7, 2011 as an exhibit to the Company's Form 8-K (File No. 001-31810).
(30)(25) Previously filed with the Securities and Exchange Commission on April 24, 2012 as an exhibit to the Company's Form 8-K (File No. 001-31810).
(31)(26) Previously filed with the Securities and Exchange Commission on October 24, 2011 as an exhibit to the Company's Form 8-K (File No. 001-31810).
(32)(27) Previously filed with the Securities and Exchange Commission on October 21, 2011 as an exhibit to the Company's Form 8-K (File No. 001-31810).
(28) Previously filed with the Securities and Exchange Commission on September 14, 2012 as an exhibit to the Company's Form 8-K (File No. 001-31810).
(29) Previously filed with the Securities and Exchange Commission on November 13, 2012 as an exhibit to the Company's Form 10-Q for the quarter ended September 30, 2012 (File No. 001-31810).
(30) Previously filed with the Securities and Exchange Commission on March 4, 2013 as an exhibit to the Company's Form 8-K (File No. 001-31810).
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